Lots of people are asking me this question, but what they’re REALLY asking is: “Are interest rates finally going up?” The answer: Yup…and they’re not going back down anytime soon.
Industry expert Mike Thompson from Envoy Mortgage agrees when he says, “the ultra low rate environment we’ve experienced over the past 5 years (3% range) is gone while a “historically”low range of 4 – 5% should remain thru 2017.”
To put the rise of rates in perspective, let me share the following example: On October 15th, my clients and I settled on a property with a 3.75% on a 30-year conventional mortgage. On January 30th, I submitted an offer on behalf of very similar clients on a similar property at a rate of 4.375% on a 30-year with the same lender. That’s over a half a percentage point in three months!
But if you go back and read what Mike said and you’re an optimist like me, you’ll notice he is suggesting a silver lining: while interest rates are on the move, they shouldn’t exceed 5% and even at that level, they are still at historic lows.
Translation: there is an opportunity here…
Quite simply, if you’re a buyer (especially a first timer) it’s a good idea to talk to a real estate agent (and a lender) to determine a path forward. Real estate is still a terrific investment with the guidance of competent professionals at your disposal.
I try to explain to people that even if your plan isn’t to move right away, getting a sense of what you can afford allows you to develop a strategy to achieve your goals. One of the worst things I see in this business is a couple coming to me and say, “We’re ready to buy!”
They’ve looked at homes on Zillow, they know what they are looking for and where they want to live. In some cases, they’ve even picked out their finishes for a bathroom or kitchen remodel…the problem arises when they finally talk to a lender and find out that their savings won’t get them there. Preparation is key.
Sellers should be paying attention too especially if they’ve been waiting out the market since rising interest rates will compel more buyers to enter the marketplace. When there are more buyers, home prices go up…simple economics. Also, sellers should consider the cost of waiting since they are subject to the increased rates if they are buying another home.
No matter your real estate goals, if you’re looking to do something in the next few years you should be talking to someone about this ever-changing real estate climate. If the last six months are any indication, those who have done their homework will be the ones who ultimately save some serious money. This is not a sales pitch…just a reality of the real estate market and a friendly (and professional) head’s up.
If you have any thoughts, questions or have a topic you’d like me to discuss in my next installment, please leave it in the comment section below.
Seth Lejeune, REALTOR, Berkshire Hathaway Home Services
610.804.2104 / firstname.lastname@example.org