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How rising interest rates will impact homebuyers around Arizona

Mortgage interest rates jumped this week and could continue to climb as the Federal Reserve raises interest rates in an effort to dampen soaring inflation.
Published: Jun. 16, 2022 at 12:48 PM MST
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PHOENIX (3TV/CBS 5) - Mortgage interest rates jumped this week and could continue to climb as the Federal Reserve raises interest rates in an effort to dampen soaring inflation.

As expected, the Federal Reserve raised interest rates by three-quarters of a point on Wednesday, making the largest jump since 1994. Chairman Jerome Powell says additional rate increases are expected to get inflation under control. “We are strongly committed to bringing inflation back down and we are moving expeditiously to do so,” Powell told reporters.

The Federal Reserve does not set mortgage interest rates, but rates for home loans do fluctuate based on the central bank’s movements. This week, the rate for a 30-year fixed mortgage jumped to about 6%. A year ago, rates hovered closer to 3%. The jump is drastically reducing buying power for home buyers. For example, if you can afford a $2,000 monthly mortgage payment, and you have $20,000 for a down payment, at a 6% interest rate, you will be able to purchase a $353,000 home. Last year, with a 3% loan, you would have been house hunting for homes closer to the half-a-million dollar mark. Real estate analysts expect some buyers, especially first-time home buyers who haven’t built up equity in other properties, will feel priced out of the market.

“There will be people who opt into renting for a while. It’s interesting through because conceptually, renting is 100% of an interest rate, right? None of that money goes back to you, and so when people get caught up in interest rates, it’s really important to understand that you have to start somewhere. Even if that dream house isn’t where you get to start, it’s knowing that you’re building equity to take it to a larger houses,” said Kelly Henderson, an Arizona realtor. “What you’re looking at is a worst case scenario. If rates fall, you can refinance, but if you wait they can go up. So a lot of people say, ‘Well, I’m going to wait for rates to go down.’ What if they don’t and now you’re looking at a worse situation.”

With rising interest rates, mortgage demand is slowing, but sellers are still in control of the Arizona housing market. “While the market is cooling, prices haven’t decreased. Inventory is still a very strong seller’s market. It’s just not this frenzy we’ve been in,” Henderson said. “We’re just starting to get back to a normal market where you need to price right and your house needs to look nice, and so that’s where the opportunity for negotiation shows up. We’re seeing less contracts show up that are ‘as is,’ so there is more negotiating from that section. We’re seeing appraisal adjustments that used to happen where someone would waive their right to an appraisal--that’s happening a lot less. But there are still plenty of situations, we had a listing this weekend at $375,000 and it received 10 offers.”