The US real estate market continues to face bleak times as mortgage rates rise for the fourth consecutive week, hitting 6.65% in this week. This is a hard-hitting increase from 6.5% the previous week, and it highlights the inflation concerns that have been plaguing the industry. The current rate is more than double what it was just a year ago, standing at 3.76%. So, prepare to write a bigger check this month to pay your real estate mortgage.
Although rates had been declining after peaking at 7.08% in November, they are now beginning to surge once again, up by almost 0.5% in a single month. Experts think that this is due to the robust economic data, suggesting that the Federal Reserve is far from done in its efforts to cool down the US economy. They believe that the benchmark lending rate will continue to be hiked. But what about your real estate taxes? Well, we’ll talk about that later.
The Real Estate Market Is on a Cautionary State
Sam Khater, Freddie Mac’s chief economist, commented that as the year started, the 30-year fixed-rate mortgage decreased due to expectations of lower economic growth, inflation, and a loosening of monetary policy. However, as sustained economic growth and continued inflation continue to rear their heads, mortgage rates are “boomeranging” and inching closer to 7%. Although lower real estate mortgage rates brought buyers back into the market in January, affordability is now a significant issue for potential buyers due to the rising rates.
This is making it especially hard for repeat real estate buyers who have existing mortgages at less than half of current rates. The current average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less than ideal credit will pay more than the average rate.
Investors are expecting inflation to remain elevated for longer, requiring the Federal Reserve to keep increasing its policy rate, says George Ratiu, a senior economist at Realtor.com. Although the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does, and investors’ reactions. With rising interest rates, financial burdens are expected to increase, making consumer choices more difficult in the months ahead. Bob Broeksmit, MBA’s CEO, said, “After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective home buyers pause about entering the housing market.”
Real Estate Property Taxes Are Also Rising
Real estate property taxes are calculated based on the assessed value of the property and the tax rate established by the governing authority. The assessed value is typically determined by a county or city assessor and represents the value of the property as determined by the government for tax purposes. The tax rate is set by the governing authority, which could be a state, city, or county.
Property taxes are primarily used to fund local services, such as schools, police and fire departments, and infrastructure maintenance. They are retrieved by the local government, either the state, city, or county, depending on the jurisdiction. In some cases, a portion of property taxes may also go to fund state or federal programs, but the majority of the funds stay at the local level. Be prepared, because this year, several counties are rising the assessments and that could mean you’ll be paying more for your real estate investment, house, or property.