Mortgage Rates Impact on 2017 Home Values

Mortgage Rates Impact on 2017 Home Values | Simplifying The Market

There is no doubt that historically low mortgage interest rates were a major impetus to housing recovery over the last several years. However, many industry experts are showing concern about the possible effect that the rising rates will have moving forward.

The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are all projecting that mortgage interest rates will move upward in 2017. Increasing interest rates will definitely impact purchasers and may stifle demand.

In a recent study of industry experts, “rising mortgage interest rates, and their impact on mortgage affordability” was named by 56% as the force they think will have the most significant impact on U.S. housing in 2017. If rising rates slow demand for housing, home values will be impacted.

To this point, Pulsenomics, recently surveyed a panel of over 100 economists, investment strategists, and housing market analysts, asking the question “In your opinion, at what level will the 30-year fixed rate mortgage rate significantly slow home value appreciation?” The survey revealed the following:

Mortgage Rates Impact on 2017 Home Values | Simplifying The Market

Bottom Line

Most experts believe that rates would need to hit 5% or above to have an impact on home prices.

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How Low Interest Rates Increase Your Purchasing Power

How Low Interest Rates Increase Your Purchasing Power | Simplifying The Market

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 4.09%, which is still very low in comparison to recent history!

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments at or about $1,100 a month.

How Low Interest Rates Increase Your Purchasing Power | Simplifying The Market

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5%, (in this example, $6,250). Experts predict that mortgage rates will be closer to 5% by this time next year.

Act now to get the most house for your hard-earned money.

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Is This the Year to Move Up to Your Dream Home? If So, Do it Early

Is This the Year to Move Up to Your Dream Home? If So, Do it Early | Simplifying The Market

It appears that Americans are regaining faith in the U.S. economy. The following indexes have each shown a dramatic jump in consumer confidence in their latest surveys:

  1. The University of Michigan Consumer Sentiment Index
  2. National Federation of Independent Businesses’ Small Business Optimism Index
  3. CNBC All-America Economic Survey
  4. The Conference Board Consumer Confidence Survey

It usually means good news for the housing market when the country sees an optimistic future. People begin to dream again about the home their family has always wanted, and some make plans to finally make that dream come true.

If you are considering moving up to your dream home, it may be better to do it earlier in the year than later. The two components of your monthly mortgage payment (home prices and interest rates) are both projected to increase as the year moves forward, and interest rates may increase rather dramatically. Here are some predictions on where rates will be by the end of the year:

HSH.com:

“We think that conforming 30-year fixed rates probably make it into the 4.625 percent to 4.75 percent range at some point during 2017 as a peak.”

Svenja Gudell, Zillow’s Chief Economist:

“I wouldn’t be surprised if the 30-year fixed mortgage rate hits 4.75 percent.”

Mark Fleming, the Chief Economist at First American:

“[I see] mortgage rates getting much closer to 5 percent at the end of next year.”

Lawrence Yun, NAR Chief Economist:

“By this time next year, expect the 30-year fixed rate to likely be in the 4.5 percent to 5 percent range.”

Bottom Line

If you are feeling good about your family’s economic future and are considering making a move to your dream home, doing it sooner rather than later makes the most sense.

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The Fed Raised Rates: What Does that Mean for Housing?

The Fed Raised Rates: What Does that Mean for Housing? | Simplifying The Market

You may have heard that the Federal Reserve raised rates last week… But what does that mean if you are looking to buy a home in the near future?

Many in the housing industry have predicted that the Federal Open Market Committee (FOMC), the policy-making arm of the Federal Reserve, would vote to raise the federal fund’s target rate at their December meeting. For only the second time in a decade, this is exactly what happened.

There were many factors that contributed to the 0.25 point increase (from 0.50 to 0.75), but many are pointing to the latest jobs report and low unemployment rate (4.6%) as the main reason.

Tim Manni, Mortgage Expert at Nerd Wallet, had this to say,

“Homebuyers shouldn’t be particularly concerned with [last week’s] Fed move. Even with rates hovering over 4 percent, they’re still historically low. Most market observers are expecting a gradual rise in home loan rates in the near term, anticipating mortgage rates to stay under 5 percent through 2017.”

Bottom Line

Only time will tell what the long-term impact of the rate hike will be, but in the short term, there should be no reason for alarm.

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The Impact Your Interest Rate Has on Your Buying Power [INFOGRAPHIC]

The Impact Your Interest Rate Has on Your Buying Power [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • Your monthly housing cost is directly tied to the price of the home you purchase and the interest rate you secure for your mortgage.
  • Over the last 30 years, interest rates have fluctuated greatly with rates in the double digits in the 1980s, all the way down to the near 4% we are experiencing now.
  • Your purchasing power is greatly impacted by the interest rate you secure. Act now before rates go up!

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Will Increasing Mortgage Rates Impact Home Prices?

Will Increasing Mortgage Rates Impact Home Prices? | Simplifying The Market

There are some who are calling for a decrease in home prices should mortgage interest rates begin to rise rapidly. Intuitively, this makes sense as the cost of a home is determined by the price of the home, plus the cost of financing that home. If mortgage interest rates increase, fewer people will be able to buy, and logic says prices will fall if demand decreases.

However, history shows us that this has not been the case the last four times mortgage interest rates dramatically increased.

Here is a graph showing what actually happened:

Will Increasing Mortgage Rates Impact Home Prices? | Simplifying The Market

Last week, in an article titled “Higher Rates Don’t Mean Lower House Prices After All, the Wall Street Journal revealed that a recent study by John Burns Real Estate Consulting Inc. found that:

“[P]rices weren’t especially sensitive to rising rates, particularly in the presence of other positive economic factors, such as strong job growth, rising wages and improving consumer confidence.”

Last week’s jobs report was strong and the Conference Board just reported that the Consumer Confidence Index was back to pre-recession levels.

Bottom Line

We will have to wait and see what happens as we move forward, but a decrease in home prices should rates go up is anything but guaranteed.

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Mortgage Interest Rates Just Went Up… Should I Wait to Buy?

Mortgage Interest Rates Just Went Up… Should I Wait to Buy? | Simplifying The Market

Mortgage interest rates, as reported by Freddie Mac, have increased over the last several weeks. Along with Freddie MacFannie Mae, the Mortgage Bankers Association and the National Association of Realtors are all calling for mortgage rates to continue to rise over the next four quarters.

This has caused some purchasers to lament the fact they may no longer be able to get a rate less than 4%. However, we must realize that current rates are still at historic lows.

Here is a chart showing the average mortgage interest rate over the last several decades.

Mortgage Interest Rates Just Went Up… Should I Wait to Buy? | Simplifying The Market

Bottom Line

Though you may have missed getting the lowest mortgage rate ever offered, you can still get a better interest rate than your older brother or sister did ten years ago; a lower rate than your parents did twenty years ago and a better rate than your grandparents did forty years ago.

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Why Are Mortgage Interest Rates Increasing?

Why Are Mortgage Interest Rates Increasing? | Simplifying The Market

According to Freddie Mac’s latest Primary Mortgage Market Survey, the 30-year fixed rate mortgage interest rate jumped up to 3.94% last week. Interest rates had been hovering around 3.5% since June, and many are wondering why there has been such a significant increase so quickly. 

Why did rates go up?

Whenever there is a presidential election, there is uncertainty in the markets as to who will win. One way that this is noticeable is through the actions of investors. As we get closer to the first Tuesday of November, many investors pull their funds from the more volatile and less predictive stock market and instead, choose to invest in Treasury Bonds.

When this happens, the interest rate on Treasury Bonds does not have to be as high to entice investors to buy them, so interest rates go down.  Once the elections are over and a President has been elected, investors return to the stock market and other investments, leaving the Treasury to raise rates to make bonds more attractive again.

Simply put, the better the economy, the higher interest rates will go. For a more detailed explanation of the many factors that contribute to whether interest rates go up or down, you can follow this link to Investopedia.

The Good News

Even though rates are closer to 4% than they have been in nearly 6 months, they are still slightly below where we started 2016, at 3.97%.

The great news is that even at 4%, rates are still significantly lower than they have been over the last 4 decades, as you can see in the chart below.

Why Are Mortgage Interest Rates Increasing? | Simplifying The Market

Any increase in interest rate will impact your monthly housing costs when you secure a mortgage to buy your home. A recent Wall Street Journal article points out that, “While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.”

Tom Simons, a Senior Economist at Jefferies LLC, touched on another possible outcome for higher rates:

“First-time buyers look at the monthly total, at what they can afford, so if the mortgage is eaten up by a higher interest expense then there’s less left over for price, for the principal. Buyers will be shopping in a lower price bracket; thus demand could shift a bit.”

Bottom Line

Interest rates are impacted by many factors, and even though they have increased recently, rates would have to reach 9.1% for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

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Buying is Now 37.7% Cheaper Than Renting in the US

Buying is Now 37.7% Cheaper Than Renting in the US | Simplifying The Market

The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

The updated numbers actually show that the range is an average of 17.4% less expensive in Honolulu (HI), all the way up to 53.2% less expensive in Miami & West Palm Beach (FL), and 37.7% nationwide!

Other interesting findings in the report include:

  • Interest rates have remained low, and even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
  • Home prices would have to appreciate by a range of over 23% in Honolulu (HI), up to over 45% in Ventura County (CA), to reach the tipping point of renting being less expensive than buying.
  • Nationally, rates would have to reach 9.1%, a 145% increase over today’s average of 3.7%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, let’s get together to help you find your dream home.

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How Historically Low Interest Rates Increase Your Purchasing Power

How Historically Low Interest Rates Increase Your Purchasing Power | Simplifying The Market

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.47%. Rates have remained at or below 3.5% each of the last 16 weeks, marking a historic low.

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments at or about $1,100 a month.

How Historically Low Interest Rates Increase Your Purchasing Power | Simplifying The Market

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5%, (in this example, $6,250). Experts predict that mortgage rates will be closer to 4% by this time next year.

Act now to get the most house for your hard earned money.

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