I could be speaking about my dating life, however I am referring to the waiting game we've been playing with interest rates. Within the last year, many sellers have enjoyed multiple bids on their move-in ready homes with seemingly more buyers in the market than sellers. Low interest rates helped boost this run to the ‘burbs, and (good news) it looks like this trend may continue for a bit longer. A recent "Living In..." article in the New York Times spoke about that very trend in our neck of the woods.
Dr. Lawrence Yun, the National Association of Realtors’ Chief Economist, whom I had the pleasure of hearing speak yesterday at an event in New Jersey, had an overall positive message for the housing industry.
He stated that while there are a few headwinds ahead, such as limited inventory conditions in many areas and mortgage lending standards that are seen by many as too stringent, that the housing market in New Jersey is following the national trend and that the “overall tide is rising” and we are “set for a multi-year recovery.”
This is all good news, but we would be well advised however, to remember that this trend of record low interest rates will not continue indefinitely. A rise in interest rates may be in the cards sooner than expected. Dr. Yun projects that rates could reach 6.5% by 2016. To put things in perspective, a rise of just 1% could increase the monthly mortgage payment on a typical home up to $700/month. Perusing the NY Times article “When Mortgage Rates Rise," it’s not hard to foresee a diminished demand when it becomes more expensive to purchase that dream home.
Another reason Yun points to for a projected increased in home sales, is the loosening of pent-up demand. He noted there are 5 million annualized existing home sales today (which is the same as in 2000), yet we have 34 million additional people living in the country, 4 million more people with jobs, and record low mortgage rates. When exactly we will get this upside release of pent-up demand, however, is unclear at the moment. Yun also points to jobs and income gains we are seeing which will help repay student debt and better position first-time buyers, further setting the stage for improved sales growth in upcoming years.
The following are 2014 mortgage rate predictions for the 30-year fixed from well-known groups in the industry. Take them with a grain of salt because they are just forecasts for future movement.
- Fannie Mae: 4.5% in Q2, 4.6% in Q3, 4.6% in Q4 (4.7% in Q1 2015, 4.9% in Q2 2015)
- Freddie Mac: 4.5% in Q2, 4.7% in Q3, 4.9% in Q4 (5.1% Q1 2015, 5.3% Q2 in 2015)
- Mortgage Bankers Association (MBA): 4.8% in Q2, 5.0% in Q3, 5.1% in Q4 (5.2% in 2015)
- National Association of Realtors (NAR): 5.5% by the end of 2014
In other words, mortgage rates are projected to go up slightly in 2014 and 2015. While we don’t yet know what 2016 has in store, the consensus seems to be it will be an upward trajectory above 6%.
This Fall is a wonderful time to make a crisp start. Take advantage of the low interest rates, less competition and make that move before everyone rushes to do the same in about a year when rate increases will start making a real impact on home affordability.