How to Deal With a Chaotic Housing Market? ‘Watch Rates Like a Hawk,’ One Expert Says

An image of a home for sale is used to illustrate an article about the housing market. Credit: Scott Olson/Getty Images
A home is offered for sale in Chicago, Illinois. Home prices have started to drop nationwide as mortgage rates have more than doubled since the start of 2022.
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Weekly mortgage rate surveys were deceptively calm this week, masking a chaotic market that makes shopping around vital and adjustable-rate loans more appealing, one expert says.

The average 30-year fixed rate barely budged — rising just two basis points to 6.75%, the highest since 2008 — in a weekly survey by Bankrate, which like NextAdvisor is owned by Red Ventures. It dropped four basis points to 6.66% in a similar survey by the government-sponsored Freddie Mac.

But in the days between those two surveys, rates climbed above 7% and then dropped again in daily averages. The dramatic swing has a lot to do with uncertainty in the bond market, a major driver of how mortgage rates are set, says Melissa Cohn, regional vice president of William Raveis Mortgage in New York.

“The market just can’t really decide which way it wants to go in terms of the direction of rates,” Cohn says.

While rates are high — the highest since 2008 — that volatility means there may be huge differences between what you can get from one lender compared with another or even from the same lender from one day to the next. 

“It means you have to watch rates like a hawk,” Cohn says.

How to Navigate This Mortgage Rate Environment

Every lender is responding to today’s volatility and high rates differently, Cohn says. That creates wide gaps in what rates are offered. She recommends potential borrowers consider working with mortgage brokers or actively track what lenders are offering on the day they plan to lock a rate. 

“Until you’re ready to lock, you need to keep your eye on more than one ball,” Cohn says.

Given today’s high rate environment — and the prospect that rates could start dropping when inflation falls, maybe as early as next year — Cohn suggests homebuyers consider adjustable-rate mortgages, or ARMs. They usually have a set period with a fixed rate, usually five to 10 years, after which the rate will change periodically with the market. That initial fixed rate, called a teaser rate, is often lower than the going fixed rate because the borrower takes on the risk of rates rising later in the term.

If you consider an ARM, look for one with a starting rate at least three-quarters of a percentage point below the fixed-rate alternative, Cohn says. The range of ARM rates available now is even wider than that for fixed-rate loans, but some lenders offer rates that only come at a small discount. That isn’t worth the risk, but a big savings could be, Cohn says.

Depending on what happens with rates in the next few years, you can refinance to a fixed rate mortgage before the teaser period ends to either take advantage of more favorable rates or lock in a more stable rate.

The Housing Market Remains in Flux

The number of people looking to get a mortgage today is far below where it was just a few months ago. The housing market has seen a significant slowdown because mortgage rates have roughly doubled since January, making it far more expensive to buy a home. That’s led to falling home prices in much of the country, although they haven’t dropped enough yet to make up for the rising mortgage rates.

The past couple of years have seen prices jumping by 20% or so every year, and that’s not sustainable. “In many parts of the country we’re seeing prices coming down, which I think is a healthy thing for the market,” Cohn says.

Adding to the chaos of the housing market is the devastation of Hurricane Ian in Florida, where the deadly storm left many in search of a home. Many Floridians are trying to sell their homes and move elsewhere, while others are trying to buy in search of a deal, Cohn says. Most importantly, there are thousands who have found themselves suddenly without somewhere to stay.

“We have to deal with the reality that there have been so many people displaced in this hurricane,” Cohn says. “They all need a place to live.”

Pro Tip

If you’re considering an adjustable-rate mortgage, it’s doubly important to shop around. Rates for ARMs can vary even more widely than fixed-rate loans, and you want to be sure you find a rate at least three-quarters of a percentage point below the best rate for a fixed-rate loan.