The 30-year fixed-rate mortgage rose sharply this week, averaging 3.05%. That marks the highest average since April, according to Freddie Mac’s mortgage market survey.

“As inflationary pressure builds due to the ongoing pandemic and tightening monetary policy, we expect rates to continue a modest upswing,” says Sam Khater, Freddie Mac’s chief economist. “Historically speaking, rates are still low, but many potential home buyers are staying on the sidelines due to high home price growth. Rising mortgage rates combined with growing home prices make affordability more challenging for potential home buyers.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 14:

• 30-year fixed-rate mortgages: averaged 3.05%, with an average 0.7 point, rising from 2.99% last week. A year ago, 30-year rates averaged 2.81%.
• 15-year fixed-rate mortgages: averaged 2.30%, with an average 0.7 point, increasing from last week’s 2.23% average. A year ago, 15-year rates averaged 2.35%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.55%, with an average 0.2 point, increasing from last week’s 2.52% average. A year ago, 5-year ARMs averaged 2.90%.

Freddie Mac reports average commitment rates along with points to better reflect the total upfront cost of obtaining a mortgage.

Demand is surging for rental units and that is pushing up prices. The amount homeowners could receive from renting their home increased by 0.4%, which may seem small but is the largest one-month increase since 2006, according to the latest Consumer Price Index. Rents of primary residences jumped by 0.5%, the largest one-month increase since 2001.

“This might just be an overshoot after a couple of relatively modest increases, but we can’t rule out the idea that the fundamentals—rapid house price gains, more aggressive landlord pricing, low inventory, and faster wage growth—are pushing up the trend,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told MarketWatch.

The end of the eviction moratorium in September may also have put pressure on rents to rise, housing analysts say. Home prices also have been on the rise as demand surges in the pandemic for housing. Real house prices have been increasing about 100 times faster than they did from 1955 to 1998, MarketWatch reports.

Also, demand for urban housing is recovering after last year’s exodus to the suburbs, says Will Compernolle, senior economist at FHN Financial Markets.

Housing prices are expected to continue to rise, analysts say.

“The rising cost of shelter, which is a significant component of overall inflation, is a result of higher construction costs and insufficient inventory,” Robert Dietz, chief economist for the National Association of Home Builders, told MarketWatch.

While U.S. foreclosure starts rose 67% in September compared with a year ago, they remain well below historic levels. The significant jump has to be seen in context: It is comparing the rate of foreclosure starts now to those of a year ago, when pandemic-led moratoriums were preventing foreclosures from moving forward.

And the increase isn’t likely to lead to a glut of homes on the market, says National Association of REALTORS® Chief Economist Lawrence Yun. “Given that plenty of potential buyers were outbid during the spring and summer months in multiple-offer situations, any increase in supply, even distressed properties, will likely be quickly absorbed,” Yun says.

In the third quarter, a total of 45,517 properties received foreclosure filings, including default notices, scheduled auctions, and bank repossessions, ATTOM Data Solutions said in its latest foreclosure market report. In particular, the month of September saw a significant increase in foreclosure-related actions as moratoriums ended. Foreclosure filings in September jumped 24% compared to the previous month and were up 102% compared to September 2020.

“Despite the increased level of foreclosure activity in September, we’re still far below historically normal numbers,” says Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “September foreclosure actions were almost 70 percent lower than they were prior to the COVID-19 pandemic in September 2019, and Q3 foreclosure activity was 60 percent lower than the same quarter that year. Even with similar increases in foreclosures over the next few months, we’ll end the year significantly below what we’d see in a normal housing market.”

The states that posted the highest number of foreclosure starts in the third quarter were California, Texas, Florida, New York, and Illinois. Broken down by metro area, the highest foreclosure starts in the third quarter were in New York, Chicago, Los Angeles, Miami, and Houston.

Countering the trend, the metro areas that saw the largest decrease in foreclosure starts in the third quarter were:

• Charlotte, N.C.: down 32%
• Portland, Ore.: down 26%
• Rochester, N.Y.: down 17%
• San Jose, Calif.: down 13%
• Hartford, Conn.: down 6%

“So far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program,” Sharga says. “But there are hundreds of thousands of borrowers scheduled to exit forbearance in the next two months, and it’s possible that we might see a higher percentage of those borrowers default on their loans.”

Government-backed loans can offer lower down payment requirements and help some aspiring buyers purchase a home. But these loans often come with several extra requirements that may slow the process and put some at a disadvantage in a fast-paced offer situation.

Eighty-nine percent of sellers would be likely to accept an offer from a buyer with conventional financing, but only 30% would be willing to accept one using a Federal Housing Administration or Veterans Affairs loan, according to an April survey of real estate professionals conducted by the National Association of REALTORS®. Six percent of agents say their sellers would not consider an offer using a government-backed loan.

Government-backed loans have long been known to help low-income and first-time home buyers make a home purchase, offering low down payment requirements.

But conventional loans continue to edge out government-backed loans. Consider August 2019, when 30% of mortgage loans were backed by the Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture. By August 2021, the share of government-backed loans had dropped to 23%, according to NAR data.

“It’s just dismaying how difficult it is for first-time buyers to be able to snag that home,” Gay Cororaton, senior economist at the National Association of REALTORS®, told realtor.com®.

More than half of buyers—52%—who got a mortgage in May paid at least a 20% down payment. A decade ago, only 40% of buyers were making at least a 20% down payment, according to NAR data.

A seller may look more favorably on a buyer who has at least can make a 20% down payment than those who may be bringing less. Statistically, buyers who can offer higher down payments are more likely to have their mortgages approved, allowing the deal to proceed. Also, government-backed loans can be slower to close. The average time to close on an FHA or VA purchase loan in the first three months of this year was 57 and 58 days, respectively, compared to 51 days for conventional loans.

“What I am looking at is the strength of the buyer financially, and that is typically measured by how much money they’re putting down, how big their down payment,” Bryan Kyle, a real estate professional with First Serve Realty in Las Vegas, told realtor.com®.

Borrowers with VA loans have no down payment requirement, but their loan may come with other requirements for approval, such as appraisals and inspections. Those extra requirements could slow a transaction, and some sellers may find them more cumbersome than those of buyers who are bringing higher financing or an all-cash offer or who are willing to waive inspections or appraisals.

“Right now, it’s a very tight market, so sellers also just want to close the deal,” Kyle told realtor.com®. “What we’re seeing is that buyers are forgoing inspections, they’re forgoing appraisals, and it’s harder to do that for an FHA or a VA loan.”

To stand out, some buyers with government-backed offers are putting more cash into an earnest money account to show a stronger commitment to close on a house. Kyle Reed, a real estate professional at Paul Presley Realty in Austin, Texas, told realtor.com® he encourages many of his military veteran clients who use VA loans to consider new-home construction.

“When it comes to VA buyers specifically, a lot of times new-construction homes are a way for them,” he says. “It’s less competitive, you’re not getting in those multiple-offer situations, you don’t have to worry about lender-required repairs or anything like that.”

Home buyers nationwide tend to see the lowest premiums during October and during the winter months, according to a new analysis from ATTOM Data Solutions, a real estate data firm, of more than 33 million single-family home and condo sales over the past eight years.

Buyers may be more likely to find the deepest discounts in certain states during certain months of the year. ATTOM Data Solutions’ study reveals when. Most states see these opportunities in winter, but buyers in Hawaii should prepare for June as the summer heat begins.

Upcoming Dates When Home Buyers Pay Lowest Premiums

The states that see the biggest discounts below full market value are:

1. Delaware: –7.9% in February
2. Tennessee: –7% in January
3. New Jersey: –4.9% in February
4. Maryland: –4.8% in November
5. Ohio: –4.8% in January
6. Michigan: –4.1% in November
7. Hawaii: –4% in June
8. Connecticut: –3.5% in December
9. Illinois: –3.1% in February
10. New Hampshire: –3.1% in January

Over the last few months, high competition and the limited housing stock for sale have brought double-digit annual gains to home prices. That has locked out many buyers, particularly first-time home buyers, or forced them to stretch their budgets to the maximum.

Amid those dynamics, the median price of an existing home reached $356,700 in August—a nearly 15% uptick compared to a year earlier, according to the National Association of REALTORS®.

Lately, more inventory is coming onto the market, but first-time buyers are still struggling to afford today’s higher home prices and the costs of homeownership.

First-time buyers comprised 29% of sales in August—they usually make up about 40% of the housing market, according to NAR.

In general, buyers are typically in good financial shape. But many first-time buyers in particular have to keep their eyes on their budget to afford homeownership. Overextending themselves can lead to regret and financial hardship later on. Nearly two-thirds—or 64%—of millennials, aged 25 to 40, say they have at least one regret about purchasing their current home, according to a Bankrate poll from earlier this year. The top regrets are that maintenance, mortgage, and other costs are too high. Thirteen percent believe they overpaid for their property.

To feel more prepared, creating a budget and considering all the costs of homeownership are essential, financial experts say.

Tackling Buyer Remorse

The typical first-time home buyer makes a 7% down payment, on average, on a home purchase, according to NAR data. But some loan offerings may allow them to put down much less, like 3% or 3.5%, or even 0% with loans through the Department of Veterans Affairs, for those who are eligible.

After calculating the down payment, first-time buyers should factor in expenses like property taxes, homeowners insurance (which averages about $1,000 a year but can vary greatly), association fees, utilities, and maintenance costs.

“Something may break once you are in the home or you may want to decorate it or change the finishes within the home,” Jessica Lautz, NAR’s vice president of demographics and behavioral insights, told CNBC.

About 23% of buyers waived inspections in August, according to NAR, but that can lead to unexpected, expensive repairs. “That is the biggest budget buster to me,” Jacqueline Cooper, president and CEO of Financial Education Associates in Dorchester, Mass., told CNBC. “These are things we don’t notice and we don’t have the experience to determine if this is an OK thing or not.”

Another big expense buyers need to prepare for is closing costs. Those include costs like the appraisal, title insurance, credit reports, loan origination fees, and more that first-time home buyers ought to brace for. They can add up to between 2% to 5% of the home price and are due at closing.

Home buyers have another shot at snagging mortgage rates under 3% this week. The 30-year fixed-rate mortgage fell to 2.99%, defying expectations that below 3% rates were now gone.

The Federal Reserve recently warned that it will soon begin tapering its bond purchases, which is expected to move rates up. The National Association of REALTORS® is predicting that the 30-year fixed-rate mortgage will average 3.5% by mid-2022.

But over recent weeks, mortgage rates have remained just above or just below 3%.

“Mortgage rates continue to hover at around 3% again this week due to rising economic and financial market uncertainties,” says Sam Khater, Freddie Mac’s chief economist. “Unfortunately, with the expectation that both mortgage rates and home prices will continue to rise, competition remains high and housing affordability is declining.”

Still, Nadia Evangelou, NAR’s senior economist and director of forecasting, writes on the association’s blog that even if mortgage rates do climb to 3.5%, that is still a historical low. Demand for housing is expected to remain robust. NAR is forecasting about 6 million existing homes to be sold in 2022, about the same as last year.

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 6:

• 30-year fixed-rate mortgages: averaged 2.99%, with an average 0.7 point, falling from last week’s 3.01% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 2.23%, with an average 0.7 point, dropping from last week’s 2.28% average. A year ago, 15-year rates averaged 2.37%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.52%, with an average 0.3 point, rising from last week’s 2.48% average. A year ago, 5-year ARMs averaged 2.89%.

Freddie Mac reports average commitment rates along with average points to reflect the total upfront cost of obtaining the mortgage.