At the beginning of the year, housing experts all agreed that 2017 was going to be the year where we would see mortgage rates begin to rise. After years of historically low rates, and an improving economy, the question wasn’t if they would increase but instead how much they would increase. Some thought we could see rates in the 5% range by the end of the year.
However, the exact opposite has happened. Instead of higher rates by mid-year, we actually have the lowest rates of the year (as reported by Freddie Mac). The following graph shows the weekly mortgage rate for a 30-year fixed rate mortgage for the first half of the year.
According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.96% which is still near record lows in comparison to recent history. The interest rate you secure when buying home not only greatly impacts your monthly housing cost but also affects your purchasing power.
Purchasing power can be defined as the amount of home that you can afford to buy for the budget which you have 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 between $1,850 -$1,900 per month.
With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5%.
With interest rates hovering around 4% for most of 2017, many buyers have benefitted from the lack of rising home prices which has helped with affordability. If you are felling optimistic about your economic future and are considering purchasing a new home, doing so sooner rather than later makes the most sense. Experts are predicting that rates will increase by the end of 2017 and will be about three quarters of a percentage point higher, at 4.5%, by the end of 2018. With that said, no one knows for sure where interest rates will be in 6 months. However, you can still get a mortgage at historically low rates right now. If predictions are correct, waiting until next year to buy could cost you thousands of dollars a year for the life of your mortgage. The cost of waiting to buy can be defined as the additional funds it would take to buy a home if prices and interest rates were to increase over a period of time.
In addition to historically low mortgage rates, down payments under 20% are the new normal and the average FICO Scores of approved loans are actually lower today than in the past few years. It is important that you fully understand what is going on in your local housing market and know what is to be expected if your preferred option is to finance to buy your new home.
If you are not currently working with a real estate agent and are interested in buying or selling property in the South Florida Area, please do not hesitate to contact me at (954)-547-9483 or via email at jaykenney@SFPropertyTeam.com.