Less than 6 months ago, mortgage rates marched above 5% – the first time in seven years – and for weeks showed no indications of abating. It had been a tipping point for house hunters. Beaten down by rising prices, meager housing choices and bidding wars, they saw rates as one more obstacle and called it quits, causing sales to plummet, even in the most popular of U.S. markets.
The end-of-2018 mortgage predictions are likely wrong
“It was somewhat of a surprise to see the degree and intensity of the pullback,” said Robert Dietz, chief economist of the National Association of Home Builders. “Five percent at those pricing levels was enough to take the wind out of sails of the housing market.”
Enter Federal Reserve Chairman Jerome Powell, who in December promised patience on further interest rate hikes and, on Wednesday, predicted that rates wouldn’t budge for the remainder of the year.
Mortgage rates are at 4.5% and are not forecast to increase much for this year.
This is what it implies for this year’s home-buying market.
More buying power
Buyers do not need to race against the clock as in 2018 when rates started at 4.25% in January and were a half-point higher by April, said Mike Fratantoni, chief economist of the Mortgage Bankers Association.
“By the time they found a house, prices and rates had priced them out,” he says. “That’s very frustrating for buyers.”
Lower rates – in conjunction with rising wages – helps affordability, too. The payment per month for a $200,000, 30-year fixed mortgage is $71 dollars cheaper at 4.5% versus 5%. Which doesn’t seem like much but could make the difference for a buyer on the margins. Total interest savings within the life of the loan is more impressive at $21,699.
“While folks might not have hit the bottom of the rate cycle – no one can perfectly time markets – on the historic side, these are still very attractive rates,” said John Pataky, executive vice president, chief consumer and banking executive at TIAA Bank.
Take the gains and run
For the seller’s side, there finally is some evidence that more move-up buyers will get into the market, eventually freeing up inventory of much needed lower-priced homes. The typical mortgage balance for purchases has reached record levels as a result of more move-up buyers, as reported by Fratantoni.
“It’s a musical chairs game,” he said. “You need someone in the higher end to move, and it works its way down the ladder, eventually opening up an entry-level home.”
Inventory in most cases also has been inching up, largely on the higher end, which also has witnessed the most significant slowdown in prices.
Possibly the trifecta of more supply, softening prices and reduced rates is sufficient to persuade some once-stubborn owners to trade up, adding more affordable homes on the market.
Buyers: What you are able control
As a buyer, you are unable to control the Fed or any of the other variables that could affect long-term rates of interest. But you will find a number of things you can control that determine the interest rate you receive on your mortgage.
Down-payment: The more money you put down, the smaller your rate – with all additional factors equal. That’s because you are taking on more risk being a buyer and lessening the risk for your lender. On a monthly basis, it is possible to remove the private mortgage insurance portion if you’re able to get a 20% down payment.
Credit rating: Lenders give the most favorable rates to individuals with higher credit scores who demonstrate a positive track record of repaying debts. On a $216,000, 30-year, fixed-rate mortgage, you’re going to get a sub-4 mortgage rate if you possess the highest tier of credit scores – 760-850 – versus a 4.5-percent rate if your score is 660 to 679, as outlined by FICO.
Debt-to-income: Lenders also look at the percentage of your debt payments to your total monthly income. The greater the percentage, the riskier the loan. If you’re able to, pay off the debt having the highest monthly payment to lower your DTI.
Ready to find your new home here in the Tampa Bay and Surrounding Areas? Nick, Cindy & Nicholas Davis with RE/MAX Premier Group are here to assist you with all your Real Estate Needs. We are always available at 813-300-7116 to answer your questions or you can simplyย click here and we will be in touch with you shortly.
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