By Danny Ponder
Rates are up! The mortgage rate jump seems to be holding and not coming back down. Pre-qualifying rates for clients before the elections were in the mid 3’s and now in the low 4’s making a payment for a $300,000 loan increase roughly $130 monthly. Some clients who pre-qualified in October are now looking at lesser priced homes due to the rate and payment increase. Rates have been historically low due to government intervention bond buying programs and global economic events. The shift has begun. All indicators are showing a strengthening US economy with translates to future higher mortgage rates. It’s not all doom and gloom or the end of the world, we are still in a low rate environment and opportunities will always be available to the well informed.
We have been through these cycles before and watch for lending products to adjust accordingly to accommodate the lending markets. Not to say we will go back to the days of stated income or negative amortizing loans but you may see hybrid loan products with fixed and adjustable terms become more popular. Talks of privatizing Fannie Mae and Freddie Mac may also see the end of the most popular lending product, the 30 year fixed loan.
Published reports regarding appreciation in the local Sacramento and surrounding markets are projecting values to increase between 5%-7% in 2017. Great news for sellers, but what about the buyers? With interest rates on the rise, this could put some buyers on the side lines or require more money for down payment. It all comes down to affordability. Affordability is the sweet spot where rates, values and buyers meet. If we see housing appreciation and rates increase, then the affordability index will shift to the negative. The lagging component locally is job growth and higher wages. Timing is imperative if entering the housing market or considering to sell. Now more than ever, you need to work closely with your trusted real estate advisors.