Why Now is the Perfect Time to Buy a House
With home prices rising for the third straight quarter, it is pretty hard to argue that the housing market recovery hasn't picked up steam. In fact, according to S&P Case-Shiller, home values increased 7.3% in the last quarter of 2012 alone. That means we are seeing the bounce from the home value bottom. Combined with mortgage rates with a national average in the 3% range, and you have the perfect storm for the best time to buy a home. But there is a problem - as the recovery continues, affordability will fall. Home values will continue to stabilize and improve, and mortgage rates are going to rise. Contrary to what the press would have you believe and what many people now think, the government doesn't control mortgage interest rates. While the Fed has been able to manipulate and affect mortgage rates with things like quantitative easing, it is not the same as control. The housing market is recovering as part of the US economy as a whole, and with that recovery is a natural increase in mortgage rates. That means that even as house prices rise, so will mortgage interest rates, providing a double whammy to buying power.
YEAR-OVER-YEAR CHANGE IN HOME VALUES; SOURCE: S&P CASE-SHILLER
Last Week's Mortgage Rates Recap
Last week we ended the week with slightly better mortgage rates than we started, and improved rebate pricing. However as we warned, there was lots of intraday volatility - mortgage rates and pricing fluctuated throughout the day. We saw swings of as much as .500 in rebate in a day, which on a $200,000 loan is $1,000. We ended the week with risks greatly favoring locking in interest rates. Most of this market movement was created due to the ongoing concerns in Cyprus as well as the positive bias that continued in the stock market regardless of that concern.
This Week's Mortgage Rates Forecast
Risks Favor: LOCKING
As most of last week focused on Cyprus, it helped to keep mortgage rates stable and even to improve slightly. However, in the early hours of the morning this AM European Union leaders agreed on a bailout package intended to keep Cyprus in the euro zone and rebuild its devastated economy. That bodes poorly for mortgage interest rates, as there is no reason to see a flight to safety to bonds. Also, as shown in the chart above, the technical indicators on the MBS (mortgage backed securities) market also point to rate weakness.
This week for any consumers who are less than 30 days from closing, we advise to lock. This week already appears to be one of a rising interest rate environment, and along with a number of key economic reports and a holiday week, volatility is a given.
BOTTOM LINE: Lock in these low rates and don't look back.