What is Going on With Mortgage Rates?????
Mortgage rates have gone up significantly in the last few weeks, and have risen around a full point in the last two months. Here’s a Readers-Digest version of what’s been happening, and some thoughts on how this might impact you:
Why did rates go up?... The Fed’s $85-billion per month bond-buying program has been keeping mortgage rates extremely low for many months. Eventually, however, the Fed wants to wean financial institutions and consumers off this policy as soon as it is “safe” to do so with respect to the health of the national economy. Though the Fed has indicated repeatedly it will not wind down its bond-buying policy until there is a clear trend of economic recovery and stability, mortgage rates spiked a few weeks ago on fears that the Fed will pull back (and ultimately discontinue) its bond-buying program. What we’ve been seeing is an inverse relationship between economic news and the mortgage market: good economic news (robust job creation, for example) --> Fed leans more strongly toward phasing out its bond-buying --> bad news with respect to loan rates and bond/ mortgage market volatility.
What will happen next?... Rates have come down slightly since they spiked a few weeks ago. I believe we won’t see much significant movement in either direction until the next bit of news comes out regarding shifts in Fed policy or our overall economic picture. However, I do expect rates to continue to trend upward in the coming months/ years. This should come as no surprise, though, considering rates are still near historic lows.
What does this mean for homeowners?... Two things: (1) If you intend to stay in your home for the foreseeable future and have considered refinancing, compare current rates with your existing rate, ask me and Dave for an assessment of your home’s current value, and determine whether or not it is possible and sensible for you to refinance. If so, start the process soon. (2) If you intend to sell your home in the near future, consider doing so now. The market has shown incredible price gains in the last handful of months due to low inventory and low interest rates… Both of those factors appear to be shifting, and I’d expect the market to lose steam as supply grows and loan rates go up.
What does this mean for home buyers?... Two things: (1) Check with your mortgage professional to see how the rise in rates has impacted your purchasing power. A general rule of thumb is that a 1-point rise in rates corresponds to a 10% reduction in purchasing power. But, again, check with your mortgage professional for a precise, case-specific evaluation. (2) Continue your search, and be prepared to buy as soon as the right property comes along. The market may level off in the coming months as supply grows and loan rates go up, but there is no guarantee that prices will go back down anytime soon – especially enough to outweigh a rise in mortgage rates such as the one we’ve seen in the last several months.
Feel free to call or email me anytime if you want to discuss your particular situation in more detail!
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