Buyers concerned with mortgage rates
Many months of low, low interest rates may have encouraged some complacency with groups of real estate buyers seeing no compulsion to act but that may have changed last week. Agents report hearing concerns of buyers who are feeling a sense of urgency due to an increase of four tenths of a percent in the 30-year mortgage interest rate over last month. Media reports used terms like “surge” or “jump” to fuel the angst felt by many who thought the lowest rates in history might go on forever.
Before you panic, let us take a serious look at what these increases mean. The average 30-year mortgage rate is the same as it was in January at 3.87 percent, which equates to a $469.95 monthly payment per $100,000 borrowed, or $22.58 higher than the equivalent payment would have been a month ago. While alone this increase seems insignificant it can make a difference for those buyers walking a fine line with debt-to-income ratios. The average price of a home in the Coeur d’Alene Multiple Listing Service is around $215,000 so the difference is in the neighborhood of $50 compared to last week’s rate. Still some slowing in mortgage applications is already being noticed.
A looming threat to the mortgage market could well be the Federal Reserve. Fed head Janet Yellen has announced that the economic recovery is reaching a point where an interest rate hike is justified. Many pundits are convinced this implies that an increase is in order for the December meeting of the Fed. Said Yellen, “U.S. economic growth appears to have picked up from its subdued pace earlier this year. After rising at an annual rate of just 1 percent in the first half of this year, inflation-adjusted gross domestic product is estimated to have increased nearly 3 percent in the third quarter. In part, the pickup reflected some rebuilding of inventories and a surge in soybean exports. In addition, consumer spending has continued to post moderate gains, supported by solid growth in real disposable income, upbeat consumer confidence, low borrowing rates, and the ongoing effects of earlier increases in household wealth.” These are all signs the Fed has been waiting for as it poises to increase rates.
Last week already provided a glimpse of what interest rate increases could mean for the loan market. According to the Mortgage Bankers Association applications for refinance loans decreased last week by the largest margin since March. The current interest rate is the highest since July of 2015 when the rate last rose above 4 percent. All indicators are that the rate will soon reach that level again perhaps as early as next week.
A 4 percent mortgage rate is not high in relative terms. The annual percentage rate (APR) for a 30-year mortgage was around 4.5 percent in January 2014 and 6.6 percent just before the financial crisis in 2007. And if you go back to 1981, it was 18 percent. Those who can afford to buy at these marginally higher rates are probably getting a leg up on future hikes as the economy continues to improve and the Fed steps in to control inflation. Those able to buy will also see some relief at tax time as they deduct that interest to lower their income tax liability.
Consult with your lender to see how these increases will affect you. Talk to your Realtor about getting into a home sooner rather than later.
Trust an expert…call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d’Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d’Alene Association of Realtors, 409 W. Neider, Coeur d’Alene, ID 83815 or by calling (208) 667-0664.