Average 30-year fixed mortgage rates recently reached 4.72 percent, which is higher than most experts predicted rates would hit by the end of the year.
Due to the war in Ukraine, inflation, and rising oil prices, rates have steadily been rising.
Originally, many experts predicted 30-year fixed rates would hit 4.5 percent by the end of 2022. Instead, rates already are surpassing this prediction, and show no signs of stopping.
Now, experts are adjusting their predictions for this year’s rates as well as their home sales forecasts.
Some experts think this year’s average rate will hover around 4.5 percent, while others believe rates will reach 5 percent or higher due to inflation.
The National Association of Realtors has unofficially changed their home sales predictions from falling 3 percent this year to now falling 6 to 8 percent.
Additionally, Realtor.com found that asking prices have dipped.
However, some experts aren’t ready to adjust their predictions just yet, because competition has remained strong so far despite rate rises, and rent rates are also continuing to rise.
In fact, instead of giving up on the competition, some buyers are seeking alternative rate and term options.
According to CoreLogic, the number of mortgages that are adjustable-rate (ARMS), reached 10 percent in January, which is more than double the 4 percent share in January 2021.
ARMS offer borrowers an initial low rate for a certain number of years before they begin adjusting each year to reflect the current market.
Depending on the lender, initial ARM rates can be fixed for anywhere from three to 10 years before adjusting.
Experts say during this initial period, borrowers could potentially save $1,000 or more annually.
ARMS are another product lenders can offer to homeowner hopefuls during a period where other options are dwindling, experts say.
However, ARMS were one of the mortgage products blamed for the 2006 housing crisis. Financial experts believe today’s pandemic-related housing surge is different, though, and that banks are proceeding with more caution due to the past.
Mortgage experts say ARMS can be a smart choice for many types of borrowers, because the initial lending requirements today do more to ensure a borrower can afford the rate jumps that occur after the initial rate period.
Also, experts say ARMS can be a good option for those who only plan to stay in their home for a handful of years, because they likely won’t be affected by the rate increases that come later.
Currently, average initial rates for ARMS are as much as one percentage point lower than current 30-year fixed rates.
According to the NAR, since the start of the year over 6 million households have been pushed out of the buying market.Experts say this rate option can allow significant savings for homeowners who are otherwise running out of options due to the rate increases.