There’s an interest rate hike likely coming from the Federal Reserve as early as December 2015, but it’s not likely to impact the hot housing market in Portland in the immediate future. Mortgage rates will likely rise as a result of the hike but not overnight. Though a rise in interest rates is expected, homebuyers in Portland aren’t likely to be deterred from buying in 2016 — assuming they can find homes to buy. The Fed Funds Rate is important, but it does not have a direct correlation to mortgage rates. Any increase in it does not mean that interest rates will move in lock-step. What I do see is a gradual increase in mortgage rates over the next 24 months, but I do not expect interest rates to leap immediately.
The price of any item (including residential real estate) is determined by ‘supply and demand’. If many people are looking to buy an item and the supply of that item is limited, the price of that item increases.
According to the National Association of Realtors (NAR), the supply of homes for sale is still below the normal 6 month level of inventory. That means less competition.
However, a recent study revealed that 71% of current homeowners are considering selling their home this year. Putting your home on the market now instead of waiting for this increased competition to come to the market might make a lot of sense.
Buyers currently in the market are motivated purchasers. They want to buy now. With limited inventory available in most markets, a seller will be in a great position to negotiate their best possible price.
Most experts are calling for an increase in mortgage interest rates in 2014. However, we believe the increase will be more dramatic than is being projected. We believe rates will be closer to 6% than 5% by year’s end.
The Fed announced last month that they would be pulling back some of their stimulus package which has helped the housing market by keeping long term mortgage rates at historic lows for the last few years. This should come as no surprise as the KCM Blog has been warning of this likelihood over the last several months.
1.8 Interest Rate Projections
Above are the most recent projections of where rates will be at the end of 2014 by the four major agencies. However, we believe that the government is not afraid to shoot right past these levels.
Doug Duncan, chief economist for Fannie Mae, this past summer announced:
“I don’t think the Fed ultimately would be troubled with a 6.5% mortgage rate.”
And Frank Nothaft, Freddie Mac VP and chief economist, at virtually the same time explained:
“As the economy continues to improve, we expect to see continued upward movement in long-term interest rates… At today’s house prices and income levels, mortgage rates would have to be nearly 7 percent before the U.S. median priced home would be unaffordable to a family making the median income in most parts of the country.”
Only time will tell. However, we feel that rates will be in the 5.75-6% range by year’s end.
Here are three great reasons to consider buying a home today instead of waiting.
1.) Prices Will Continue to Rise
The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report released last week projects appreciation in home values over the next five years to be between 12.3% (most pessimistic) and 32.8% (most optimistic).
The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes any sense.
2.) Mortgage Interest Rates Are Increasing
As reported by Freddie Mac, interest rates for 30-year fixed-rate mortgages have risen about one full percentage point over recent historic lows.
The National Association of Realtors, the Mortgage Bankers Association, Freddie Mac and Fannie Mae, in their July forecasts, have all projected 30-year-fixed mortgage interest rates to be between 4.8 and 5.1% by this time next year.
An increase in rates will impact YOUR monthly mortgage payment. Whether you are moving up or moving down, your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.
3.) It’s Time to Move On with Your Life
The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But, what if they weren’t? Would you wait?
Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe it is time to buy.
If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.
Many homeowners are waiting until the Spring ‘buying season’ to list their homes for sale. Here are five reasons why that might not make sense this year:
1.) Demand Is High
Homes are selling at a pace not seen since 2007. The most recent Existing Home Sales Report by the National Association of Realtors (NAR) showed that annual sales in 2012 increased 9.2% over 2011. There are buyers out there right now and they are serious about purchasing.
2.) Supply Is Low
The monthly supply of houses for sale is at its lowest point (4.4 months) since May of 2005. The current month’s supply is down 21.6% from the same time last year. Historically, inventory increases dramatically in the spring. Selling now when demand is high and supply is low may garner you your best price.
3.) New Construction Is Coming Back
Over the last several years, most homeowners selling their home did not have to compete with a new construction project around the block. As the market is recovering, more and more builders are jumping back in. These ‘shiny’ new homes will again become competition as they are an attractive alternative to many purchasers.
4.) Interest Rates Are Projected to Inch Up
The Mortgage Bankers’ Association has projected mortgage interest rates will inch up approximately one full point in 2013. Whether you are moving up or moving down, your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.
5.) Timelines Will Be Shorter
The dramatic increase in transactions caused many challenges to the process of buying or selling a home in 2012. We waited for inspections, dealt with last minute appraisals and prayed that the bank didn’t ask for ‘just one more piece of paper’ before issuing a commitment on the mortgage. There are fewer transactions this time of year. That means that timetables on each component of the home buying process will be friendlier for those involved in transactions over the next 90 days.
Several government agencies are reviewing data to determine what will be the minimum down payment required under the new Qualified Residential Mortgage (QRM) guidelines scheduled to be revealed in the next few months. In the original Mortgage Market Note issued by the FHFA, it was suggested that loan-to-value (the percentage of the overall purchase price which was being borrowed) was a major factor in determining if a loan would default:
“For most origination years, requirements for borrower credit score and loan-to-value ratio are the factors that most reduce the ever-90-day delinquency rate of mortgages acquired by the Enterprises that would have met the proposed QRM standards.”
The note then made the following proposal:
“An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated. For home purchase mortgages, rate and term refinances, and cash-out refinances, the LTV ratios are 80, 75, and 70 percent, respectively.”
Basically, the original note suggested that a 20% down payment should be the new guideline. We realize that there has been much debate on this issue since and that the minimum down payment required under the new QRM guidelines will probably be less than 20%. However, we can’t know for sure.
Bloomberg reported last week:
“The six regulators drafting the separate QRM rule, including the Department of Housing and Urban Development, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, must decide whether to include such a requirement — and whether to make it less than the 20 percent they originally proposed.”
Will it be more difficult to qualify for a mortgage after the new QRM rules are announced? Probably
As David Stevens, President of the Mortgage Bankers Association said during a speech in Washington on Jan. 16:
“I have consistently warned of the regulatory tidal wave to come and it’s finally upon us. These changes will impact business operations and the future of mortgage access for years to come.”
From Keeping Current Matters: The real estate market continues to heat up as we head into the summer. Will this increase in demand equate to an increase in home prices? That depends. Remember, the price of any item is determined by the supply of and demand for that item at any point in time. Let’s look at the facts as reported by the National Association of Realtors (NAR) in this month’s Existing Home Sales Report: Demand has strengthened, showing a 10% increase over the same month last year. The supply of homes for sale is down 20.6% from the same time last year. Because supply is down and demand is up, many believe prices should begin to increase as we finish out 2012 and head into 2013. In some markets, this analysis is correct. However, there are certain states that still need to clear through a backlog of foreclosed properties which were delayed by the court procedures in those states. The National Mortgage Settlement gave the banks a clear path for releasing these distressed properties. Therefore, in several states, there will be a new supply of discounted inventory coming to market over the next six months. Whether that increase in supply will be fully offset by the increase in demand is still unknown. If not, home prices in those markets will still be under downward pressure.
Thank you so much for working so tirelessly to sell our home. Even when the odds were against it, you were able to make it happen. You kept us informed every step of the way. Your friendly manner, efficiency, and amazing organization made the short sale process easy to understand. We have been and will continue to refer you to all of our friends. – Jake and Gloriana
“When Joe helped me buy a house, he did far more work understanding me as a person, instead of just getting into a car with me to look at potential properties. During our first meeting, Joe invested the time to get to know me and my goals as a homeowner. We developed a list of key criterias that would fit all I wanted my house and yard to be, as well as the expectations I had for the neighborhood I would live in. He used that information to identify properties that were within my range, fit my key criteria and were appealing to my life and goals for the next many years. The house I bought was among the first houses Joe showed me.
“As we transitioned from searching for a house into the buying process, Joe was very organized, effective and complete in his efforts. Joe had the ‘map’ I needed to follow to get from interested buyer through to a homeowner. He helped me follow the progression through the map, every step of the way. Joe was always timely with communications and support during the closing process. He would be sure to contact me regularly, even if it was to let me know that there were no new developments for the time being.
“Joe was professional and sincere with me the whole time I worked with him. I felt comfortable and secure that Joe was being honest and open about all aspects of the home buying process and was a strong advocate for me as the buyer. I had complete trust in Joe as a representative of my interests and highly recommend him to anyone who is looking for a true professional that devotes the time and effort to you as an individual.” -Patrick
“Buying your first home can be a very intimidating task. With Joe’s insight on the Portland real estate market and customer centric focus, I felt informed and comfortable about making one of the biggest financial decisions in my life. In the end, I found a great home that I love and a great realtor that I would recommend to my friends and family.” -Alan