Just when it seemed the housing market might be creeping back to some semblance of normal, Americans have a new reason to buy now. Mortgage rates are rising sharply, and that trend has spurred home shoppers to try to lock in loans now.

“There’s definitely an urgency that’s pushing buyers into the market,” says Andy Sachs, a Keller Williams broker in Newtown, Connecticut. “Some of these buyers have been looking for a year. We’re seeing bidding wars again.”

The Mortgage Bankers Association said Wednesday that applications for purchase mortgages rose nearly 8 percent in the past week. (By contrast, applications for refinances fell.) The surge in mortgage activity ahead of the spring homebuying season reflects a sense among home shoppers that historically low mortgage rates are fading.

The average rate on a 30-year mortgage rose to 3.75 percent as of Jan. 19 from 3.4 percent two weeks earlier and 3.27 percent three weeks earlier, according to Bankrate’s national survey of lenders.

Katie Severance, an agent at Douglas Elliman in Palm Beach, Florida, is advising her clients not to dally — and she’s following that advice herself. Severance and her husband are under contract to buy a home in South Florida.

“We were going to wait until the spring, and we decided to push it up because of interest rates,” said Severance, author of “The Brilliant Homebuyer: 101 Tips for Buying a Home in the New Economy.” “The rule of thumb is that for every one-point increase in mortgage rates, your buying power goes down almost 10 percent. So if you’re buying a $500,000 house and interest rates go up a point, you can only afford a $450,000 house.”

It’s unclear exactly how the jump in mortgage rates will affect home prices over the long term.

“The first few months of rising rates yield mixed results,” says Lawrence Yun, chief economist of the National Association of Realtors. “Some want to buy sooner before the rates rise further. Others get priced out as the commensurate rising monthly payment no longer works in their finances. So home sales could go either way.”

In Connecticut, Sachs is hearing from potential sellers who want to put their homes on the market before prices soften. “They don’t want to miss the boat, either,” Sachs says.

Rising rates could be a budget buster

Record-low mortgage rates were one factor that pushed home prices to new highs in 2020 and 2021. For now, though, rising rates are likely to intensify affordability challenges.

“The surge in mortgage rates, coupled with the surge in home prices, will price more first-time buyers out of the market,” says Greg McBride, Bankrate’s chief financial analyst.

As a result of skyrocketing prices, it’s getting harder for Americans to afford homes. Just 56.6 percent of homes sold during the third quarter were affordable to families earning a typical income, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

Meanwhile, a sharp rise in home prices since the start of the pandemic means homebuyers face bidding wars and sticker shock.

“Even with the rise in rates, getting approved for the mortgage is the easy part,” McBride says. “Finding a place in your price range and not being outbid is still the primary challenge facing homebuyers. Resist the urge to go beyond what you can afford just to get into a house. The novelty of the new home will wear off — the mortgage payments won’t.”

What to consider if you’re shopping for a mortgage

  • Shopping around is crucial. Getting at least three offers can save you thousands of dollars over the life of your loan. As you analyze your options, compare interest rates and annual percentage rate, or APR, which reflects more of the total cost of the mortgage. Some lenders might advertise low interest rates but offset them with high fees, a tactic revealed in the APR.
  • Get your credit score in order. Your credit score is the most important factor determining your mortgage rate. The best deals typically go to borrowers with credit scores of 740 or higher.
  • Do your homework. Compare offers online, read lender reviews and go directly to lenders’ websites. If you have a relationship with a lender, bank or credit union, find out what interest rate or customer discount you might qualify for. Often, lenders will work with customers to give them a better deal than they might otherwise get at another place.
  • With rates on the rise, you might consider paying points. Mortgage points are the fees a borrower pays a mortgage lender to trim the interest rate on the loan. This is sometimes called “buying down the rate.” Each point the borrower buys costs 1 percent of the mortgage amount. So, one point on a $300,000 mortgage would cost $3,000.
  • Don’t overthink. While you should pay attention to the ups and downs of the mortgage market, your best move if you need a property loan is to get a rate that suits your budget and goals. Don’t be pressured into a deal that doesn’t meet your needs just to save a little on mortgage interest. Rates are still super-low by historical standards.

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