If you've been thinking about buying or selling a home in this market, by now I know you've been seeing reports about mortgage interest rates on the upward climb. It's hard to decipher when the best time is to get off the sidelines and get into the market. I get asked this question a lot. Always, my answer will be today... or better yet, yesterday. Yesterday only because if you spoke with your lender yesterday, you would be ready to write an offer today. Why not tomorrow? Tomorrow is not promised or certain, we only know what's happening today... for all we know, an asteroid could hit us or we could be leveled by a nuclear blast. Bleak, I know, especially coming from someone who's supposed to be helping you make one of the largest purchases in your life. Please disregard my elder millennial existential crisis, it's ongoing.
In the past two years, this country has seen record setting low interest rates, a result of a number of factors, but mainly an attempt to avoid economic collapse as a result of the Covid pandemic. People were extremely unsure about the future, we were scared of absolutely everything, there was record unemployment, and as a result, we weren't spending money. Our capitalist society really only functions and grows if investments are being made, and money is being spent (and lent). In an attempt to incentivize consumers to part with their pile of acorns and keep dollars circulating, the Federal Reserve lowered the Federal Funds Rate (the target rate banks borrow and lend money to each other) to a record low 0.05%. While there isn't a direct correlation between the Fed rate and mortgage rates, they follow the same trend. When the Fed rate rises, it makes it more expensive for banks to borrow and lend money, and as you'd expect, banks pass that cost onto consumers in the shape of higher interest rates. In 2020 we saw rates drop into the mid 2's and basically hover in the 2's and very low 3's through the end of 2021. Now rates are climbing into the low 4's (back to 2019 levels) as markets respond to a recent Fed rate hike, one of at least 7 raises promised in 2022. Why so many? Our economy, although still shaky, is clawing back to pre-pandemic levels. This weird chapter in our nation's history will be known for social distancing, record inflation, and the unbreakable spirit of Americans. I wish I would have bought more stock in Zoom.
Historically speaking, rates in the 3's, 4's , 5's and even 6's are still low. We just got spoiled, really fast. In the early 1980's, mortgage rates were over 16%!!! Arguably, homebuyers didn't have to borrow that much in those days, real estate was so much cheaper, but still. Don't get me started on the plight of Millennials and the unobtainable American Dream. Check out this chart below, laying out the annual mortgage rates dating back to 1972 - maybe you will feel better about where rates are now.
So yeah, yesterday was the best time to buy a house... but today is a close second.
What does it matter if interest rates rise? What does that mean for buyers? Let's look at an example and find out. On a $300,000 house (credit in the mid 700's), the payment at a 4% interest rate is about $2,060 a month. If you wait and the rate goes up to 5%, the payment jumps to $2,230. If your debt to income ratio is tight (we will talk about this in another post), or your monthly budget is tight, the difference in the payment might force you to look at cheaper houses or worse yet, price you out of the market entirely. There are many factors that contribute to your rate, including a change in credit score and the type of loan product. When you trust us to guide you through the process, we will connect you with our tried and true local lender partners, who can help guide you through the loan process - from pre-approval to close. Don't be afraid to talk with a lender about your situation, it's the first step in the home buying process and painless, I promise.
MM - 4/2022