Are you thinking about buying a home in 2018? Are you on the fence about entering the real estate market? If so, you might want to consider buying sooner rather than later. Mortgage rates just rose again, and economists from Freddie Mac and other groups are predicting that they could rise gradually throughout 2018.
Mortgage Rates Hit Highest Level Since December 2016
During the week of February 8, 2018, the average rate for a 30-year fixed home loan rose to 4.32%. Rates haven’t been that high since December 2016. This is based on the weekly mortgage industry survey conducted by Freddie Mac. The average rates for 15-year fixed mortgages and 5/1 ARM loans rose as well. Those are the three categories tracked by this survey.
According to the Freddie Mac report:
“The U.S. weekly average 30-year fixed mortgage rate rocketed up 10 basis points to 4.32 percent this week. Following a turbulent Monday, financial markets settled down with the 10-year Treasury yield resuming its upward march. Mortgage rates have followed. The 30-year fixed mortgage rate is up 33 basis points since the start of the year.”
This is actually the continuation of a trend that began a few weeks ago. For a while now, mortgage rates have been following a steady upward path. You can see that clearly in the chart below. During the latter half of 2017, and into the beginning of 2018, the average rate for a 30-year mortgage hovered below 4%. Then it crossed that threshold and shot up by 25 basis points (0.25%), which brings us up to the latest reading.
Chart: 30-Year Loan Rates Over the Last Year
The chart below, courtesy of Freddie Mac, shows average rates for a 30-year fixed home loan going back one year. As you can see, rates are higher now (on the right side of the chart) than they’ve been all year.
Chart: Average mortgage rates over the last year | Source: Freddie Mac PMMS
This is not surprising to industry watchers and analysts. Last year, economists from the Mortgage Bankers Association and Freddie Mac were predicting that rates would rise gradually throughout 2018. Some forecasts suggested that the average rate for a 30-year mortgage would reach 5% by the end of this year. And that’s entirely plausible, given this recent uptick in lending rates.
So what’s causing this recent rise in borrowing costs? Several things. Over the last year, the Federal Reserve has been gradually increasing the short-term federal funds rate. This can have an indirect affect on consumer borrowing costs. The Fed’s policy changes, along with general economic improvements, are partly what’s driving the rise in interest rates — including those used for mortgage loans.
And some economists are predicting that we will see a continued yet gradual rise in rates throughout 2018.
All of this makes a good argument for buying a home sooner rather than later. Home buyers who postpone their purchases until later in the year could encounter higher mortgage rates. And when you consider the fact that home prices are still rising in most parts of the country, there’s even more urgency.
Granted, you should never make a home purchase until you are 100% ready to do so, financially and emotionally. It has to be the right move for you, one that will improve your qualify of life in some way. With that being said, it might make sense to buy sooner rather than later to avoid possible rate hikes and home-price increases.
Note: Mortgage rates can vary from one borrower to the next due to a number of factors, including credit history and the type of loan being used. The numbers presented above are based on averages reported by Freddie Mac.
Farmington Hills mortgage rates have been so low for such a long time that it would be surprising if area buyers didn’t begin to take them for granted. It’s only human nature. Addressing would-be home buyers who, though qualified, remain on the sidelines, government-sponsored Freddie Mac headlined the question, “If Housing Is So Affordable, Why Doesn’t It Feel That Way?”
The article appeared in Freddie Mac’s Insight publication which noted that right now housing isn’t just affordable—it’s “near record” affordable! HUD’s Housing Affordability Index has been rising for over 35 years, interrupted only briefly by the housing crisis of the mid-2000s. It hasn’t quite sustained the all-time affordability peak but is holding steady well within hailing distance of that 2012 record.
The Farmington Hills Mortgage Rates Currently
Farmington Hills mortgage rates have cooperated nicely, continuing to go with the national herd. For 30-year fixed-rate mortgages, U.S. rates averaged 3.90%—down even further from the previous week’s 3.93%. Of course, the 15-year and adjustable rate offerings were even lower.
With that kind of good news, why do the media report “affordability issues” (Mortgage Daily News) and even an “affordability crisis” (PBS)? The answers dwell in both perception and in some underlying realities.
There’s definitely reality in the widespread phenomenon of a shortage of housing supply. Farmington Hills listings may show a number of properties being offered, but the national number of homes up for sale remains “very tight.” The echoes from 2009, when new housing starts hit rock bottom, are still having an effect. In that year, housing starts barely equaled a third of the previous averages. Even though current construction levels are nearly back to normal, they’ve yet to make up for that shortfall.
Less real is the public perception of how much cash is needed for a down payment. Farmington Hills mortgage rates may be tantalizingly low, but when potential local applicants “mistakenly believe they must have a 20% down payment to obtain a mortgage,” the result is a number of otherwise-qualified buyers who don’t know that more than half of today’s borrowers make smaller down payments.
The Psychological Factor
Not mentioned in the Insight article is another psychological factor that could explain two things at once. In The New York Times’ “Politics” section, a commentary sought to explain why the Federal Reserve wasn’t acting to boost interest rates. According to the author, the cause lay with inflation rates, which remain low—“and that’s a problem” for Fed rate-makers. The reason higher inflation would be a good thing (despite common sense) is that it makes consumers feel good when their paychecks go up. “A little inflation can brighten the economic mood…people enjoy the illusion.”
The upshot here may be that even though today’s extraordinarily low Farmington Hills mortgage rates create actual affordability, some well-qualified customers may feel safer staying on the sidelines until the economy starts generating go-go economy headlines. It’s an ironic reality that by the time those headlines materialize, actual affordability might have already begun to slip away.
If you’ve been mulling the wisdom of your own Farmington Hills home acquisition, let me show you some great properties…and some great numbers!
Although it is St. Patrick’s Day around the country, it does not stop the interest rates for home buyers from climbing. The rates for home buyers is still at record lows but this is changing fast and as you can see from the predictions now might be the best time to purchase a new home. Home inventory is low, but will increase over the spring and summer months so the best advice I can give you is to start your home search right away in order to save thousands throughout the term of your mortgage. I’m always here to help contact me anytime.
The 30-year fixed mortgage interest rate is currently still below 4%. Many buyers may be on the fence as to whether to act now and purchase a new home, or wait until next year, believing they still have time to lock in a low rate.
If you look at what the experts are predicting over the course of the next 12 months, it may make the decision for you.
Home Rate Predictions for 2016 2Q:
Even an increase of half a percentage point can put a dent in your family’s net worth.
Let’s look at it this way…
The monthly payment (principal & interest only) on a $250,000 home today, with the current 3.86% interest rate would be $1,173.
If we take that same home a year later, the Home Price Expectation Survey projects that prices will rise about 4.4% making that home cost $11,000 more at $261,000.
If we take Freddie Mac’s rate projection of 4.7%, the monthly mortgage payment climbs to $1,354.
Some buyers might not think that an extra $181 a month is that bad. But over the course of 30-year mortgage you have spent an additional $65,160 by waiting a year.
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