Interest rates for a 30-year fixed rate mortgage climbed from 3.95% in the first week of January up to 4.61% last week, marking a 7-year high according to Freddie Mac. Many factors fueled the current pace of acceleration. Sam Khater, Freddie Mac’s Chief Economist, opines:
“Healthy consumer spending and higher commodity prices spooked bond markets and led to higher mortgage rates over the past week. Not only are buyers facing higher borrowing costs, gas prices are currently at four-year highs just as we enter the important peak home sales season.”
But what do gas prices have to do with interest rates?
Investopedia explains the relationship like this:
“The price of oil and inflation are often seen as being connected in a cause-and-effect relationship. As oil prices move up or down, inflation follows in the same direction.”
You’ve probably noticed that filling your gas tank became substantially more expensive in recent months. The average national gas price climbed nearly $0.50 from the beginning of the year, leading to the highest price for Memorial Day weekend since 2014.
As rates go up, your home purchasing power goes down, but don’t worry; rates remain well below the averages we’ve seen over the last four decades.
“Freddie Mac said this year’s higher rates have not yet caused much of a ripple in the strong demand levels for buying a home seen in most markets, but inflationary pressures and the prospect of rates approaching 5 percent could begin to hit the psyche of some prospective buyers.”
Experts believe rates will continue to climb, meaning buying your New Jersey home sooner rather than later will lock in a lower rate than waiting. Even a small increase in interest rates creates a big impact on your monthly housing cost.
Planning on buying a home this year? Keep an eye on gas prices the next time you’re at the pump. If you start to feel a big jump in price, know that rates are probably on their way up, too. Ready to buy your new home now? Contact Team Nest Builder’s Lynn Garafola at 973-222-3777 to start the process today! Liked this article? Check out our blog for loads of helpful information on real estate, home improvement and community events!