Home buyers this summer saw mortgage rates swing up and down more than at any time since 1987

Budgeting for a home purchase is difficult when mortgage rates swing up and down as rapidly as they have been.

Mortgage interest rates are fluctuating at levels not seen since 1987, according to Redfin, which makes it difficult for buyers to budget to purchase homes.Read moreTOM GRALISH / Staff Photographer

Published Sep. 29, 2022, 3:20 p.m. ET

Average mortgage interest rates have been more volatile over the last three months than they’ve been in more than three decades, according to an analysis by the real estate brokerage Redfin.

Average 30-year fixed mortgage rates across the country have swung from 5.7% at the end of June, to 4.99% in early August, to 6.7% this week — the highest since 2007, according to the government-backed mortgage buyer Freddie Mac. During that time, rates have been down half a percentage point in two weeks. They climbed the next week, fell the next, and have risen for the last six weeks.

A home buyer who started looking in July and closed on a home in September watched the potential mortgage rate change by an average of half a percentage point every four weeks, according to Redfin. The average mortgage rate is up more than 1 percentage point from this time last month.

Fluctuations in rates can mean the difference between spending hundreds of dollars more or hundreds of dollars less for housing payments each month. That changes the pool of affordable homes for buyers.

“It’s incredibly difficult to plan and to budget and to evaluate home prices when rates are moving so fast,” said Taylor Marr, deputy chief economist at Redfin.

Ardent Credit Union, based in Philadelphia, offers to lock in mortgage interest rates for first-time home buyers for free for six months — an attractive deal as rates have rapidly fluctuated. This year, some local borrowers were able to take advantage of rates in the low 4% range although rates climbed higher than 6%.

The Federal Reserve has been raising its benchmark interest rate to try to tame the worst inflation in 40 years. Financial uncertainty fueled by national factors — such as the Fed’s actions — and international factors — such as the war in Ukraine and a potential economic crisis in the United Kingdom — is driving volatility in mortgage rates. Fluctuations are likely to continue in the coming months.

In 1987, volatility in mortgage rates also was high. But rates trended downward, the opposite of what is happening now. Rates 35 years ago ranged from 9% to 11%, but homes cost less and more people could afford to pay cash. So changes in rates have more of an impact now than they did historically, Marr said.

For a typical household buying a $500,000 house at the average mortgage rate with a 20% down payment, for example, the potential total payment fell by roughly $64,000 from July to August and then jumped up about $118,000 from August to September. During this time, potential monthly payments would have ranged from $2,874 to $3,202, according to Redfin’s analysis.

Fluctuating rates can complicate both home searches and home selling. Buyers may need to adjust their offers. Sellers may need to adjust their prices.

Home buyers can lock in mortgage rates for a period of time — and usually for a price. But rate volatility makes it difficult for buyers to know whether to pay thousands of dollars to lock in a rate that may drop.

“It makes it harder to make the right decision,” Marr said.

Some good news, he said, is that the data have shown “rates can fall just as fast as they can climb.”

“And that’s a part of volatility that can be beneficial for people,” he said.

Interest rates typically inch up or down, so the recent significant seesawing of rates “is not normal,” said Damien Manno, assistant vice president of real estate lending at Ardent Credit Union. “We’re still in uncertain waters here” with inflation and employment.

He said mortgage rates at the current level are not sustainable when home prices — and loan amounts — are as high as they are. Potential buyers will remain priced out of the market. He anticipates rates to eventually settle into the 4% to 5% range after inflation eases. In the meantime, buyers who are concerned about the size of monthly payments can look to adjustable-rate mortgages as an option, because “whatever [rate] you get into now is not likely to be permanent,” Manno said.

Regardless of which way rates are swinging moment to moment, Manno and Marr tell buyers to talk to lenders about their options.

“In these volatile times, it’s more important than ever to be in communication with your lender to come up with mitigation strategies to navigate prices,” Marr said.