Mortgage Rates Trend and an Improving Economy – How it Impacts You

It has started.  You hear the buzz everywhere talking about the future of interest rates, economy, and real estate market.  How many times will the Fed raise rates this year?  Should I lock in a mortgage rate now?  How is the job market doing?  Are housing prices going up?  No one has a crystal ball no matter how much one claims to know.  But let’s discuss the mortgage rates trend and how it affects buyers, sellers, realtors, and more.

Actually interest rate increases are a key indicator that the U.S. economy is improving.  Actually, low interest rates reflect a struggling economy.  For the last 10 years, the great recession and stimulus packages from the government have given us a rare period in history.  These rates are unprecedented.  So even though rates have been extremely low for so long, they need to go up.  Increasing rates is a good sign and we will explain this further.

mortgage rates trend

Jobs Report and Confidence Affect on Mortgage Rates Trend

As mentioned, higher rates means a more robust economy.  There are many factors that influence mortgage interest rates.  Factors include stock & bond market, inflation, consumer confidence, world & U.S. fears, and jobs.  So market fears such as low confidence, bad jobs reports, or low inflation lowers rates.  But a jobs report like the January and February 2017 numbers typically pushes the mortgage rates trend higher.  Each month showed 238,000 and 235,000 new jobs respectively.  Construction and manufacturing jobs led the way.  The FOMC (or Fed) will decide whether to raise the federal funds rate this week.  So strong jobs reports such as these will undoubtedly influence rates upward.  Check out a prior article that explains why a fed rate increase will not always raise long term mortgage rates.

 Also it is easy to tell that local through federal level leaders are pushing for a better economy.  Basically they want more jobs.  There is a lot of talk of tax cuts for businesses on the horizon.  Additionally healthcare changes are being discussed to hopefully lower Americans’ premiums and out of pocket costs.  Successes in these and other areas should increase jobs.  More jobs and higher pay means more consumer confidence.  So more confidence is a good thing for the economy and the real estate market.  Although this does mean higher mortgage interest rates.

Mortgage Rates Trend Affect on Real Estate

Will mortgage rates keep rising?  Are housing prices increasing?  It is decidedly so!  And that isn’t just the chance answer of the magic 8 ball!  Obviously higher real estate prices benefits owners and sellers.  If a homeowner decides to sell, there are greater profits to realize.  These profits could be used for down payment on a new house, pay off debts, or pay for kid’s college.  Currently the IRS has beneficial rules for owners selling a home and potentially not having to pay capital gains taxes on the profit.  But this also means a seller would now be a buyer and would pay a potentially higher price on the new home.

First Time Buyers

Rising prices and rates will also affect first time buyers.  As entry level home prices increase, less first time buyers can afford a home.  But home prices and rates are not the only factors with today’s millennial buyers.  Student loan debt prevents many millennials from buying.  Although there are little known, great financing solutions in these cases.  These mortgage programs are flexible when it comes to student loans.  So even though the mortgage rates trend 2017 seems to be going up, there is great opportunity.  Homeownership creates wealth.  Equity beats renting most of the time.

Relocation Buyers

There are a lot of buyers from the northeast US taking advantage of selling their appreciated home.  Then northern sellers relocate to states like Virginia, North Carolina, or South Carolina.  Many of these buyers either have a job relocation or retire to the south.  Because home values are usually more expensive up north, they are able to have larger down payments here.  Seniors are often able to use this equity along with a reverse mortgage to buy an affordable home.  Other relocating buyers include service members.  Appreciating homes allow veterans to sell and hopefully cover their mortgage balance.  Then VA eligible buyers may buy another home using a VA home loan.

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Benefits of Homeownership & Equity

Many of our local real estate markets are actually doing so well that there is a limited amount of inventory.  Therefore this is another factor that assists owners and sellers.  It is a sellers market so buyers must be ready to jump on the right properties.  But even buyers could also benefit from this future growth.  Building equity not only creates wealth, it creates opportunity.  Opportunities are benefits that include:

  • Tax deductions
  • Eventual paid off home
  • Fixed payments
  • Pride in ownership
  • You’re the boss
  • Use of equity for future needs

Waiting For Rates to Drop?

Again, no one has a crystal ball and practically nobody expected rates to stay as low as they did for so long.  So rates could possibly go down, but it is a very small chance of that.  Rate driven borrowers can actually be their own worst enemy by sitting on the fence.  Although rate is important, there are other very important factors to include in a mortgage decision.

  1. Good purchase contract terms
  2. Closing costs
  3. Right neighborhood & school district
  4. House layout for you
  5. Good houses go fast

Even though we are talking about rising interest rates, they are expected to stay historically low for quite a while.  With increases on the horizon, it is important to remember we are just above record lows and borrowing costs are very cheap.  Plus they are expected to stay low for a while.  When it comes to buying a house, remember all facets of this important decision.  The overall picture is key rather than trying to time the market for a possible rate dip. When you find the right house, you found the right house.  Rates are what they are at that time and timing rates is like timing the stock market.  That’s a tough one to do.

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No Matter the Rates, Ownership is the American Dream

Even though we are mortgage lenders, we do realize not everyone wants to own a home.  But ownership does have many opportunities no matter what the rate is.  So even when rates have been 15% in the 1980’s, buying a home is a primary goal of families.  Owning a home is a major part of the American dream.  Financing dreams is what we love so much about our jobs.  Give us a call to discuss if homeownership is right for you.  If the mortgage rates trend is going up, it is a good idea to call today.  Also check out mortgage products available by choosing “loan types” at the top of this page.

Written By: Russell Smith

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