What a way to start the holiday season
“Tis the season to be jolly,” except, of course, if you’re looking to finance or refinance and missed the low interest rate window. But don’t be afraid the Grinch has not totally taken over, and although rates are inching up, they are still historically low.
After the election, the treasury bond yields when up right along with mortgage interest rates. Two days after the election the average rate on a 30-year, fixed-rate, conforming mortgage spiked a quarter of a percentage point to 3.87 percent, going as high as 4.02 percent after that. As of this writing, the 30-year, fixed rate is about 3.98 percent and the 15-year rate is 3.09 percent.
As previously stated, even though rates are going up they are still historically low. In, fact the average over the past 45 years is 8.26 percent, according to data from Freddie Mac. No one, of course, wants to see those rates again, but even a small movement in the rate can have a serious impact on the real estate market in general.
Higher interest rates can have a dramatic effect on not only the mortgage market, but also on the refinance market. This has proven to be true since two weeks ago the refinance index fell to a six-month low. The refinance market is more sensitive to even small rate increases since homeowners who currently have mortgages close to the new higher rates may reconsider their refinance options.
New home buyers probably will not change their decisions to purchase, but could readjust their price range and potential marginal buyers may find they may not qualify for financing. For example, a $300,000 30-year mortgage at 3.5 percent carries a $1,347 monthly payment; a $300,000 30-year mortgage with a 4 percent mortgage carries a $1,432 monthly payment, $85 a month more. It doesn’t sound like a lot, but it may be just enough to either send buyers into a lower price range or disqualify them all together if they don’t have additional funds for a down payment.
Higher rates also could have the effect of pushing those buyers who have been sitting on the fence to jump into the market. His could be a temporary boom to the real estate marke but long term it could backfire. And there is an upside to higher mortgage interest rates. It could keep out real estate speculators as well as buyers who may be encouraged to purchase properties more expensive than their incomes could afford.
Another factor to keep an eye on that could affect the real estate market is the regulatory environment. The new administration will undoubtedly rollback many of the banking regulations contained in the Dodd-Frank law. The law instituted strict safeguards for mortgages resulting in banks only making loans to buyers with sterling credit and credit scores in the high 700 range. That left a lot of buyers out of the loop, especially younger buyers with fuzzy credit histories.
It is unlikely lenders will go back to the wild west days of balloon payments, no document loans and little or nothing down. However, there likely will be some loosening of regulations bringing new buyers into the fold. That said what will happen to real estate values is anyone’s guess, and since no one could predict the outcome of the president race I dare anyone to predict next year’s real estate market.
Now you can face the holiday season more confused than ever about home financing. Time to get out the eggnog.