Home buyers are facing the most volatile mortgage rates in over three decades as the Federal Reserve tries to quell painfully-high inflation and cool the economy. That's making it "extraordinarily difficult to plan ahead" according Redfin Deputy Chief Economist Taylor Marr because mortgage rates are hanging drastically between the time buyers set their budget to when they actually make an offer.
For instance, buyers that started their search in July and closed in September saw potential mortgage rates fluctuate by roughly half of a percentage point every four weeks, Redfin reported. Mortgage rates haven't been that volatile since 1987, the brokerage reported.
In July, a buyer looking to purchase a $500,000 home in July, anticipated a monthly payment of $3,051, totaling $1.098 million over 30 years. This assumes a 20% down payment and a prevailing 5.7% mortgage interest rate. $435,777 of that payment is interest.
However, to buy that same $500,000 home in early August, they expected their monthly payment to be $2,874.
In late September, when they locked in the deal, the monthly payment was $3,202. This assumes a 20% down payment and the prevailing 6.29% mortgage rate.
According to Redfin, these rates are jumping around to a high degree because the Federal Reserve has been raising interest rates to try and slow rising prices without pushing the economy into a recession.
Last week, mortgage buyer Freddie Mac put mortgage rates at 6.29% — their highest level since 2008. However, economists see rates moving to 7% or above. National Association of Realtors Cheif Economist Lawrence Yun expects mortgage rates to rise close to 7% in the coming months while Bank of America strategists say the average interest rate on the most popular U.S. home loan could soon climb above 7%.
This volatility will continue "in the near term" as the Fed battles inflation, according to Justin Dimler, regional sales manager at Redfin’s mortgage company Bay Equity.
However, Dimler projected that rates should fall over the next 12 to 18 months if inflation eases as expected.
The Associated Press contributed to this report.