Will Falling Mortgage Rates Improve Affordability in Washington?

April 12, 2023
Last updated:
April 12, 2023
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Mortgage rates have declined a bit since hitting a 20-year peak back in November 2022. And a recent forecast suggested they might have further to fall, throughout the rest of 2023. Such a trend could help increase affordability for home buyers across the state of Washington.

Here’s an analysis of the latest mortgage rate trends and forecasts, and what they might mean for Washington home buyers in 2023.

Mortgage Rates Dropped Again This Week

According to a report published earlier today by the mortgage buyer Freddie Mac, the average rate for a 30-year fixed mortgage loan dropped to 6.28%. That’s quite a bit lower than the 7.08% peak we saw in November of last year.

This also marked the fourth week in a row where mortgage rates have dropped. And it seems to be luring more home buyers back into the real estate market, across the state of Washington and nationwide.

So that’s where we are right now, as of early spring 2023. As for the near future, a recent forecast suggested that mortgage rates might continue to decline over the coming months. So let’s shift gears and talk about these recent predictions.

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MBA Forecast Predicts Gradual Decline in Rates

On March 20, the Mortgage Bankers Association issued an updated forecast for the housing market and mortgage industry. Among other things, they predicted that home loan interest rates could continue to ease through the rest of 2023.

This latest forecast predicted the average rate for a 30-year fixed mortgage loan would hover around 6.1% during the second quarter of this year, 5.7% in Q3, and 5.3% in Q4. If turns out to be even remotely accurate, it could increase affordability for home buyers across the state of Washington throughout the rest of 2023.

A Rise in Home Buyer Affordability?

In a real estate context, affordability refers to the ability of a home buyer to purchase a home without straining their budget or finances. Many different factors can affect affordability, including the buyer’s income, the amount of debt they have, and the amount of money they have for a down payment.

Home prices and mortgage rates also play an important role, when it comes to buyer affordability in Washington. To put it simply, rising rates and prices decrease affordability, while falling mortgage rates and home prices can have the opposite effect.

Mortgage rates, in particular, can strongly influence a home buyer’s ability to purchase a house.  Here’s a hypothetical scenario using realistic numbers to illustrate this point.

A home buyer in Washington wants to purchase a $400,000 home, with a 20% down payment and a 30-year fixed-rate mortgage. If the mortgage rate was 5%, their monthly payments would come to around $1,718. But if the rate rose to 6%, the monthly payments would total around $1,899 — an increase of over $180 per month.

The bottom line is that mortgage rates play a key role in home buying affordability, and they seem to be heading in a favorable direction lately.

Slower Price Growth Could Help Buyers as Well

According to the latest data from Zillow, the median home price in the state of Washington is currently around $552,000. Prices have actually declined a bit over the past few months, as the real estate market downshifts to a slower pace.

Looking forward, Zillow predicts that home prices statewide will remain level over the next year or so. This forecast was issued in spring 2023 and extends into the spring of 2024.

This is another trend that could help home buyer affordability in the state of Washington — especially if it coincides with a further decline in mortgage rates. Slower and more sustainable price growth will bring us back toward something resembling normalcy. It would allow wages and earnings to catch up, which in turn could help improve the affordability situation.

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Proactive Steps You Can Take

As a home buyer, you don’t have a lot of control over house prices and mortgage rates. But there are some things you can do to improve affordability when buying a house in Washington.

Here are some strategies worth exploring:

  • Improve your credit score: Mortgage pricing and interest rates are partly influenced by credit scores. Generally speaking, a higher score could help you qualify for a lower rate. This could reduce your monthly payments and increase housing affordability. The best way to improve a credit score? Pay all of your bills on time and in full, to avoid delinquencies from hitting your credit reports.
  • Consider a shorter loan term:  The 30-year fixed-rate mortgage is by far the most popular type of home loan in the state of Washington. But you’ll probably be able to secure a lower rate by using the shorter 15-year mortgage. When this article was published, for example, the average rate for a 15-year loan was 0.76% lower than the average for the longer 30-year option.
  • Consider an ARM: We just talked about how the type of mortgage loan you use can affect your interest rate. The ARM loan is another example of this. Adjustable-rate mortgage (ARM) loans usually have a lower interest rate during the first few years, which could increase your short-term housing affordability. Just make sure you have a plan in place for when your ARM loan resets, since the rate could rise beyond that point.
  • Consider lower-priced areas: If you have the luxury of expanding your house-hunting search area, you could get more house for the money. Home prices vary considerably across the state of Washington. So try to look beyond your first-choice location, if possible. Surrounding areas might offer more affordability and less competition.
  • Consider a fixer-upper: A home that needs work may be more affordable, even though you’ll have to put in some sweat equity. Buying a fixer-upper can be a great option for Washington home buyers who aren’t afraid to do a little work.
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