When mortgage interest rates begin to climb, experts immediately begin to discuss home affordability indexes. They calculate how an increase in rates will slow home purchases as more and more potential buyers are priced out of the market. Today, with home prices also increasing, many believe that home sales may slow down rather dramatically.
This may prove to be true in the long term. However, in the short term, increasing mortgage rates may have the opposite effect. Many buyers who have been sitting on the fence may realize that delaying their purchase no longer makes sense.
Last week, in a CNBC article, Matt Weaver of Florida-based PMAC Lending explained the impact an increase in rates will have:
"These increases really help the home-buying market. It really gets buyers to really understand that 'wait a minute, rates are at an all-time low, let's react now, let's react before they go higher’.”
As an example, we can look to 2013 when interest rates spiked up by a full percentage point over a two month period. The result is that many buyers rushed to the market on the fear that rates would continue to climb. It didn’t necessarily increase the number of sales that year dramatically.
However, it did seem to move some sales up in the year as evidenced by the chart below:
The Federal Reserve Bank of New York recently released the 2015 SCE Housing Survey. The survey revealed that most current renters would prefer owning and that 61.9% of them plan to buy a home within the next five years.
68.3% stated they would prefer owning (with 45.6% saying they ‘strongly’ prefer owning). When asked at what point in the future do they think they will own a primary residence:
8.2% said within a year
15.3% said in 1 to 2 years
38.4% said between 3 to 5 years
What’s Holding Them Back?
Of the 68.3% who would prefer to own, 2 out of 3 cited difficulty in getting a mortgage for the reason they do not own. However, many believe that the reason so many think that it would be difficult to get a mortgage is not fully based on current market realities.
For example, studies have shown that there is confusion over the amount of money needed for a down payment. Research has shown that 40 to 50% of Americans believe that between 15-20% is the minimum required for a down payment. In reality, there are many programs available at 5% and ...
One of the biggest questions plaguing the current housing market is where mortgage interest rates will be at this time next year. Over the last two months, rates have begun to creep up (see chart).
Though we don’t like to project rates moving forward, we do want you and your family to have the information you need in order to decide whether to wait before buying your first house or moving up to your ultimate dream home.
Here are the most current mortgage rate projections from Fannie Mae, Freddie Mac, the Mortgage Bankers’ Association and the National Association of Realtors.
Projecting interest rates is not easy. So what should you do – do it now or wait? We like the advice Doug Duncan, senior vice president and chief economist at Fannie Mae, recently gave:
“The rule for when is it time to buy is always the same: given your household budget and where current interest rates are, if it makes good financial sense to take out a home loan today, then today is the day to do it.”
People often ask whether they should buy a home now or wait. Recently released data suggests that waiting may not make sense as prices seem to again be on the rise. Let’s take a look at some of the data and commentary on the subject:
“The current tightness of supply conditions would normally be consistent with much faster price growth. The continued steady growth in home sales that we expect this year will only add to this upward pressure on prices.”
National Homeownership Month actually started as a week-long celebration of homeownership during the Clinton administration in 1995. In 2002, President George W. Bush proclaimed June as the National Homeownership...