Mortgage rates hit two-decade high: What should prospective home-buyers do?

BOSTON - Mortgage rates have climbed to 7% - the highest number they've been in two decades. Rates on a 30-year mortgage are now more than double what they were at this time last year. 

It's just the latest impact Americans are feeling from inflation levels not seen in 40 years. WBZ-TV's Paula Ebben spoke with Warren Group CEO Tim Warren about what you should do if you're in the market to buy a home. 

You're in the market for a home - is this a good time to jump in?

"Well it might be better in a few months or next year some time. The mortgage rates are just so high these days that it makes it very very expensive for somebody to buy a home. At the beginning of the year the mortgage rates were about 3% now they're about 7%. I figure if you're buying a median-priced house in Massachusetts, which is about $550,000, and you put 20% down you're going to pay roughly $1,800 a month more than what you would've paid in January."

By the end of the year, do you think rates are going to 10%?

I don't know. The Federal Reserve seems determined to continue to raise the rates that they control. They don't control the mortgage rates directly. But you know that has been driving up the mortgage rates and I expect rates will go up - I don't know about 10%.

So it might be a better idea to hold off for now?

Think of it this way. Since it costs maybe $20,000 more each year to pay mortgage payments than you would otherwise, then people are going to be pinched and the only way they can solve that problem is by making lower bids. Eventually the sellers will realize that and they can probably reflect that in the pricing that they do. And homes now for the first time, the National Association of Realtors has reported that homes are now selling below the asking price. They've cooled off. 

There will be a lot of baby boomers watching this who will think to themselves "Boy, I remember back in the early 80s my interest rate was 14%." But is the big difference in the average price of the home now? Especially in Massachusetts?

I think so. My first mortgage was in 1976 at 9%, but the house only cost $35,000. So we're talking about some much bigger baseline numbers here for the house itself, so every point this interest rate goes up, it is significant.

We're also seeing that the new listings are falling and continuing to fall and so there's just fewer to pick among. . . more and more sellers are just going to say "Gee, maybe this isn't the right time to sell." The pickings are going to be slim.

The young couple saving and waiting to buy that first house - it's been very frustrating that the market's been so hot the last couple of years. Now that prices of homes are starting to come down a little bit but you have the interest rates going up, they might be tempted - but you still think they might be better off waiting?

If you see your dream home and you can afford it, you should probably go for it. But if it feels like you're making compromises either in terms of paying more than you can afford or if the house isn't your perfect house, then maybe you should wait.

Let's say you do decide to go ahead and buy a house and lock in at 7% - you're not necessarily stuck at 7%, right? Especially if you have some of these very creative mortgages. So what would your advice be to someone who does decide to buy now?

That's a tough one. The adjustable rate mortgages - they adjust in both directions. If you see interest rates rising you have to think if it's a 3-year adjustable then you have to think ahead to what it's going to be like three years from now. So if you're confident that inflation is going to come down and the Federal Reserve is going to ease up on interest rates, then maybe a 3-year adjustable rate mortgage would work for you. But you're looking at a crystal ball and things can change. Back in 2005, 2006 we had a peak of the market and a lot of the people who had mortgages at that time started to get into foreclosure trouble because they couldn't afford the mortgages. So you have to be careful. 

I would just say that right now prices are still rising, they're not rising as fast as they were before. In 2021 and 2020 they went up by double-digits. Now we're down in single-digit increases in median price, but they're still rising. I expect that when you look in December and you look at December of last year, you'll probably still see an increase but it won't be as big. Next year they might start to slip from those high numbers we had this year.