(NewsNation) — With mortgage rates near their highest level in more than 20 years, even veterans who often get more favorable loan terms are feeling the pinch.
VA home loans, provided by private lenders but backed by the U.S. Department of Veterans Affairs, tend to have lower rates than conventional mortgages but in today’s environment, those rates are also higher than they’ve been in years.
Now, a 30-year fixed rate VA home loan is around 7%, more than double the average rate just two years ago, according to Optimal Blue.
One U.S. Army veteran recently told a local Denver news station he was holding off on buying a house after he was quoted with an 8% interest rate.
The percentage of veterans who said they plan to buy a home in the next four to six months fell to 27% last quarter, down from 42% the previous quarter, according to a recent Veterans United Home Loans survey. Respondents said high-interest rates were the top barrier.
Many Americans, both veterans and nonveterans, are arriving at the same conclusion: It’s better to wait. But that decision has put more pressure on the housing supply.
Low inventory is one of the reasons home prices are higher than ever, even with elevated mortgage rates.
“Selection is really limited, the prices are at record highs and the cost of financing is the highest in more than 20 years,” said Greg McBride, chief financial analyst for Bankrate.com. “It’s just not a great time for homebuyers.”
Those who are still looking to buy find their dollar isn’t going as far as it did just two years ago.
“If you’re comfortable with a monthly mortgage payment — principal and interest only — of about $2,500, rates at 7% get you about $380,000 worth of home,” Chris Birk, VP of Mortgage Insight at Veterans United Home Loans, said.
At 3% rates, that same budget got you a $600,000 home, Birk noted.
For Jeremy Green with the National Association of Realtors (NAR), rising interest rates have underscored the value of other VA loan benefits.
VA loans don’t require a downpayment or private mortgage insurance. They also tend to have lower origination costs.
“Now more than ever, the Department of Veterans Affairs home loan products are increasingly becoming more important,” said Green, the policy representative for federal housing with the NAR.
VA loans are also assumable, Green pointed out, which could help veterans who are looking to sell as mortgage demand falls to its lowest level since 1995.
Those factors are among the reasons why veterans are still more optimistic about homebuying than the general public. More than half, 56%, feel that buying a home is within reach compared to 48% of civilians who said the same, the Veterans United Home Loans survey found.
As for whether mortgage rates will return to the low levels seen before the Fed’s rate hikes, McBride doesn’t expect them to.
“That period of ultra-low and declining rates that we enjoyed for, particularly the last 20 years, but really, for much of the last 40 years, is in the rearview mirror,” he said.