How Rising Mortgage Rates Are Impacting New Home Buyers
Most of what is reported on in the mortgage industry recently centers on one common theme: rising mortgage rates and the “end of an era” of low mortgage rates.
There’s just two minor points of context that’s often overlooked: the era of low rates isn’t quite an era after all. And the fact that those rising mortgage rates are actually still low.
While it appears seeing anything in the 3 percent mark for the average 30-year fixed-mortgage rate is behind us, the mortgage rate is still hovering just around the 4-4.3 percent mark.
Comparably speaking, mortgage rates in the ‘90s were generally in the 7-9 percent, and even during the period between 2001-2007, mortgage rates were between 4-7 percent. If any homebuyer during those periods was given a chance to secure a 4.3 percent rate, they’d surely jump at the chance.
Brad Springer, CEO and Founder of RatePlug reminds us once again that it is not all doom and gloom. Instead, he suggests brokers, agents and loan originators should take this time when consumers are retreating to engage and educate agent and buyers about their options in this market.
That starts with providing resources and continuing to build relationships within the industry in order to keep everyone informed about the latest rates and trends, Springer said.
It’s also about remembering that doomsday in the mortgage world hasn’t come quite yet – despite the many reports that may have consumers tightening their pocketbooks.
Sure, the “era of low mortgages” may be coming to a close, but like any industry that’s reliant on the state of the economy, a transition of power every four to eight years in the White House, and a congress that oversees financial regulation, rising mortgage rates aren’t out of the norm.
Why Is Now The Time To Buy?
What do today’s current mortgage rates actually show as this “era” shifts into a somewhat unknown future with rates projected to rise throughout 2017? Well, the answer could be as simple as understanding why now is the time secure that mortgage.
And here’s why.
First, let’s compare those rates again. If rates are going to continue to rise, logic would suggest now would be the time to lock in that 30-year-fixed mortgage. Certainly a 4 percent mortgage rate seems solid when comparing it to pre-recession rates.
Of course, when a headline like one from The Washington Post from Dec. 15 reads “Mortgage rates move higher for the seventh week in a row,” it’s easy to see why so many consumers begin to panic.
That same article goes on to provide some indication about why continuous rising rates isn’t all bad news.
“The good news is that lenders have been anticipating the Fed’s move and have baked the likelihood of a rate hike into their loan pricing, meaning that mortgage rates are unlikely to change dramatically from where they are today,” Doug Lebda, LendingTree CEO told The Post.
Buy Now or Risk Paying Later
Still, data shows the latest rates seem to be scaring consumers off. The latest MBA mortgage application weekly survey, which includes MBA data for the week ending Dec. 9, shows mortgage loan application volume dipped 4 percent from the week prior. Not only does the survey indicate the pool of new homeowners seeking mortgages is slowing, but it also shows refinancing continues to dip.
Whenever rates go up, consumers tend to panic and retreat from buying. But, based on the latest trends, and projections for the next two years, there’s one key reason why now is actually still the time to buy.
“The era of ultra-low interest rates is over,” Lawrence Yun, chief economist of the National Association of Realtors, said in a statement Wednesday. “[The] short-term rate hike will be followed by several additional rounds of increases in 2017 and 2018. Despite these moves, mortgage rates will not rise alarmingly.”
Or, buy now and risk paying more later.
Rates aren’t “ultra-low” anymore as Yun said, but rates are still low, historically speaking, when you compare to the trends in the last decade. And, as noted above, if you’re comparing the rates to 1990 (average of 10.13 percent), anything under or even around 5 percent doesn’t seem so bad.
“We still have quite a ways to go for rates to be even close to average,” Len Kiefer, deputy chief economist for Freddie Mac, told CNN Money.
And with projections suggesting the Fed rate will increase multiple time over the next couple years, today’s rates may be as good as it gets.