As I work with sellers and buyers of homes a common question is, what will happen to mortgage interest rates? While there isn't an answer to that question that we can go to the bank with (pun intended), there are some things we can look at to help us make an educated guess. Mortgage loans are long term loans. Consequently, the rate of interest charged for a mortgage loan will be influenced by those factors that impact other long term rates. So, lets review three things that may be indicators of what is happening with long term rates and then briefly discuss actions that will support your real estate goals.
The 10 year US Treasury Yield (image from YCharts.com)
This chart shows the rate of return investors in 10 year treasury bonds expect from their investment. The rate is a reflection of supply, demand, and investor perspective of various economic indicators. So an upward trend in this rate may be an indicator of what to expect for long term interest rates for loans like those secured by a mortgage or deed of trust.
US Inflation Rate (chart provided by Tradingeconomics.com)
You are probably aware that the Federal Reserve Board raised short term interest rates several times last year. This picture helps us understand why. If you imagine a line starting at the top of the June 2017 bar (1.6%) and ending at the top of the December 2017 bar 2.1% you see an upward trend. It is hard to know whether the inflation rate will continue to trend upward or whether it will level out or even decline again. But we do know that the current trend puts pressure on interest rates because higher interest rates tend to cool the economy which in turn removes pressure on the inflation rate. As a result, we might expect long term interest rates to follow the increased short term rates resulting in slightly higher mortgage interest rates.
Mortgage Loan Interest Rate Trend (chat from Freddiemac.com)
Note in this chart that the 30 year and 15 year fixed rates as well as the 5/1 ARM rate are all trending upward. This is a reflection of what we observed in the 10 year Treasury Bond rate and the US Inflation rate.
Are you thinking about selling? If so, realize that as mortgage interest rates go up, fewer people will be able to afford to purchase your home or any similar home. The result will be downward pressure on home prices as the market adjusts to the new relationship between supply and demand. In strong seller markets, that may mean a leveling off of prices or simply a more normal appreciation rate. In a balanced or buyer's market it may mean an actual decline in home prices. So, if you are thinking about selling your home now would be a good time. I doubt anybody has ever successfully picked the peak or bottom of the real estate market. But you can look at trends and make smart decisions about when to sell. Whether you want to down size, up size, or relocate to an area that better suites your lifestyle you will be able to find the right home if you pick an agent who is willing to go find it for you. So don't let tight inventory stop you from reading the charts and making a decision.
If you want to purchase a home, realize that as rates climb your buying power goes down. So now is a great time for you to pull the trigger. Get pre-approved for a loan so you are in a good position to build a strong offer for the home of your choice. If you need help finding a lender who will work well with you and make the process easy and nonthreatening, contact me. I'll be happy to provide a few contacts. Once you're pre-approval is in place it is time to get into the market and find the house that you want to call your own.
I'm here to help. If you would like to discuss your situation and move forward to achieve your real estate goals, please feel free to contact me. Call or text me at 425-829-9565.