Happy New Year! With the holidays behind us it’s time to start looking forward to what’s to come. I’m sure you’ve already decided what your resolution and goals will be, but what’s in store for the housing market?
Crystal balls are not my thing, but unless you’ve been living off the grid lately I’m sure you’ve heard all the talk about the sturdy economy resulting in the possibility of a rise in rates. Although the Fed does not control mortgage rates directly, it does influence them so there is a possibility mortgage rates will go up in the coming year. How does that impact you? Let’s break it down a bit…
First and foremost a rise in rates does not mean they are going to skyrocket to double digits like they were in the ‘80s. We have been spoiled over the last several years of extremely low rates in the 3’s and 4’s which makes breaking the ceiling of 5% seem really high but, trust me, it’s not. When I first started in this industry everyone thought they would NEVER go below 6%. Never say never, right? Even if they rise to the 5% range that is still a very low price to pay for the ability to borrow hundreds of thousands of dollars and, depending on the appreciation rate for your area combined with any improvements you make, you’ll still end up ahead in the long run.
According to www.themortgagereports.com who analyzed predictions from the top six industry entities, the average rate for 2019 is projected to be 5.17%. The highest prediction was 5.3% by the National Association of Realtors (NAR) and the lowest was 4.8% from Fannie Mae. To give this perspective, the average rate of a 30-year fixed mortgage on December 21, 2018 was 4.65% so we’re looking at just over a half percent increase based on these averages.
Now let’s apply these concepts to practical theory. If you took out a 30-year fixed loan for $100,000 at the lower rate from December of 4.65% it would cost you $516 per month in principal and interest, or $5.16 per thousand dollars borrowed. Looking to the future, should you do the same at the higher average of 5.17% the same loan will cost you $547 per month or $5.47 per thousand dollars you borrow. That’s a difference of 31 cents per thousand dollars. Can this make a difference? Yes! Depending on your price point, debt ratios, expenses, etc. it certainly can. Is this a catastrophic shift in the market? No!
The moral of all this is: If you are considering buying this year talk with your lender now! Know what the potential shift in the market may mean for your individual circumstance. If you are considering selling this year talk with your Realtor now! They will be able to guide you based on your individual circumstance as far as timing and strategy.
Thanks for reading! Tune in next week when I analyze the numbers from 2018 so you can be in the know around the water cooler. Take care….