Over the past year, we’ve seen mortgage rates go from record lows to new highs as Q4 2022 opened with rates just below 7% in October.
While we enjoyed low interest rates in 2021, it’s an entirely different story when Q2 2022 hit. April opened with mortgage rates nearly breaking the 5.00%-mark at 4.95%.
As we enter the last quarter of 2022, mortgage rates are approaching almost 7.00%, with the average 30-year fixed-rate mortgage at 6.85%. According to Bankrate, mortgage rates as of October 4, 2022 are as follows:
- 30-year fixed-rate mortgage: 6.85%
- 20-year fixed-rate mortgage: 6.89%
- 15-year fixed-rate mortgage: 6.07%
- 10-year fixed-rate mortgage: 6.13%
- 30-year jumbo mortgage: 6.83%
- 5/1 adjustable rate mortgage: 5.28%
The high inflation rates are primarily to blame for the significant year-over-year increase in mortgage rates. The Consumer Price Index shows prices up 8.3% year-over-year as of August 2022. To combat the surging inflation, the Federal Reserve raised its short-term interest rate benchmark a few times.
The Fed increased interest rates by 75 base points in September for the third consecutive time. The federal agency doesn’t dictate how much mortgage rates should go. However, inflation somehow influences its actions and the subsequent mortgage rate movements.
First American Financial Corporation deputy chief economist Odeta Kushi says, “Inflation is absolutely in the driver’s seat, particularly as it pertains to mortgage rates.” She adds that until we see that inflation has slowed down, the upward pressure on mortgage rates will stay as it is.
Related: When Will Mortgage Rates Go Down in 2022?
How the Market Has Reacted in the Last Month
Mortgage rates hovered above the 6.00%-mark in September 2022. If you add property appreciation to the mix, it makes homeownership a lot more elusive to regular folks.
As expected, the higher rates were met with different responses from buyers, particularly those who are into real estate investing. As interest rates surged in Q2 2022, some investors started holding off plans of buying investment properties. Others pulled the trigger while interest rates weren’t that high.
As a result of the spike in interest rates earlier in the year, we saw the annualized home sales rate drop below five million homes in July. The number represents a one-million sale decline compared to the same in the previous year.
ATTOM Data Solutions EVP of Market Intelligence Rick Sharga says that July was the seventh consecutive month where home sales were lower than the month before. Data from the National Association of Realtors (NAR) show a 20.2% year-over-year drop in sales and a 5.9% decrease from the previous month.
Sharga states, “I expect both new and existing home sales will probably continue to decelerate through the fall and winter months, with home price appreciation likely to end 2022 in the low single digits — likely in the 2 to 3 percent range.”
The decline can be attributed more to high mortgage rates than increasing property prices. Borrowers were more cautious in the past month, as they were also facing a worsening inflation rate.
People who bought properties in September are somehow relieved to know that they were able to grab the opportunity before rates soared even higher. It is particularly notable since the US Federal Reserve might make a couple more hikes before the year ends.
What This Means for Real Estate Investors
Despite the real estate market cooling down a bit, property prices are still trending higher in several states. While some states are seeing a slight drop in median home prices, it’s still not enough to make home affordability accessible to everyone.
Like regular homebuyers, real estate investors are also divided in their responses to the ongoing mortgage rate spikes. Some prefer to hold out until the market cools down a bit more and hope that rates begin to fall soon. Others, on the other hand, are aggressively looking for investment properties to buy while they can still afford them.
Many investors now are taking advantage of the fact that higher interest rates have taken a huge chunk of the competition out of the game. It may also work for you if you can afford the higher costs of taking out a loan on top of the typical upkeep costs of an investment property.
Related: How to Find Profitable Rental Investment Properties for Sale
Due Diligence Is the Key
Some may find the less competition and slightly lower (but still expensive) prices attractive, but higher mortgage rates balance them out. The best thing you can do now – if you’re really serious about investing in real estate – is to perform due diligence.
It can easily be done with a real estate platform like Mashvisor, which is designed to help investors like you locate the best real estate deals in the most promising markets. Regardless of whether you plan to fix and flip the house or rent it out as a traditional or vacation rental property, Mashvisor can help you find the most affordable properties in any location.
The platform provides a real estate heatmap tool that lets you take a look at an area and identify which neighborhoods are doing exceptionally well under certain filters. The filters are especially useful for those who plan to start a rental property business.
You can use Mashvisor’s real estate heatmap tool to identify which neighborhoods are doing exceptionally well according to your chosen metric.
Mashvisor also offers an investment property calculator that will help you crunch the numbers using highly accurate data taken from the site’s massive database. The real estate website sources its data from reliable real estate sources like Zillow, Realtor.com, and Airbnb. Doing the math using Mashvisor’s calculator will make ROI projections fairly realistic.
Perhaps, you will strike gold with your due diligence and find the best possible and most profitable deal. Simply put, as an investor, you need to ensure that you can afford an investment property and not default on your payments for the duration of the loan.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
Wrapping It Up
Mortgage rates are likely to stay high until the year ends. Even if inflation does cool down a bit, you still need to make sure that you invest in an income property that you can afford.
We recommend using a platform like Mashvisor to find the most affordable and profitable investment properties for sale. It’s easier to find affordable properties with Mashvisor even if mortgage rates are high.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.