Mortgage rates dipped again recently and the top-of-mind question is when will they go up, and stay up, for good. It looks like 2015 will be the year for that.
We are coming off the fastest decline in rates we have ever seen. The Fed has ended it’s quantitative easing, and by doing so they are saying to the world that our economy can stand on its own two feet.
Our last 2 quarters of GDP growth have been the strongest 2 quarters we have seen in 20 years. Our housing recovery continues and unemployment is below 6%. I’m just coming off our annual “State of the Market” report with PHH Home Loans. When Jed Stafford from PHH makes a prediction, I usually listen because he’s usually right. And Jed ( as well as several experts) predict rates will be up by 1% by the end of next year.
How does all of this impact you as a home buyer?
When interest rates rise 1%, buying power decreases 11.06%. Why is that important? Let’s consider a $500,000 home you want to purchase today, with that price being the ceiling of what you can afford. If the rates rise 1%, and nothing else in your financial situation changes, you would only be able to afford a house priced at $445,000. If we consider modest appreciation of 3%, that puts the home you are buying at $431,000. Take a look at homes priced at $431,000 today – do they meet your needs? If they don’t, then buying in the next 3 to 6 months might make more sense for you. While home affordability has peaked (see below), the window of opportunity is still open.
Well, it depends on whether or not you are ready to make that plunge, and whether or not a year from now your financial position will change substantially. If you are able to pay down large debts that impact your ability to finance larger monthly payments (credit card debt, auto loan, student loan debt, are a few examples), then waiting a year might be the right move.
It’s important to consult your loan officer though – they can help you figure out your position today, at today’s interest rates; and then forecast the future financial impact of waiting (costs of the home may go up) – with lower debt, however, you may wind up even or even ahead.
The bottom line: have a plan and stick to it. If you have read this far and need a referral to a great lender to help you evaluate those options, please contact me via e-mail: firstname.lastname@example.org. And if you need to sell your home before making a purchase, contact me for a complimentary market analysis that can help determine if the market has recovered enough of your equity.