Rates and Real Estate:
The topic du jour surrounds interest rates, and the FED’s continued push to increase the FED Funds Rate, which in turn drives up consumer rates, most impactfully, mortgage rates. The basic consensus is that as the US economy improves and finds sure footing with low unemployment and widespread confidence, rates will continue to tick up.
The FED met again on Wednesday March 15th and raised the Funds rate by 25 basis point to a target rate of .75 to 1.0%. Now, this does not mean that interest rates on mortgages went up by .25%. Rates barely adjusted as there are many economic factors that contribute to mortgage rate movement and some of Wednesday’s expected rise was already priced into mortgage rates,.
Prior to the election, rates were at historic lows, now with some strong economic influences, rates have ticked higher and will likely continue to do so, especially considering the FED’s bias to increase interest rates. That said, the impact at present is minimal, but could very well be more impactful later this year..
On a 1MM mortgage, if you opt for a 30 year fixed, payments went from on average $4,490 to $4,702 a monthly increase of $212. On a 500K mortgage, again on a 30 year fixed, payments went from on average $2,245 to $2,351 a monthly increase of $106. These differentials will increase of course along with the expected rate trajectory.
Time to buy, time to sell?
While no one can foretell exactly where rates will land by mid-2017, most economists agree that rates will continue to slowly increase in the mid to long term given the economic trends we are seeing. Considering the rate expectations and the fact that we are still in a historically low rate environment, this may mean it’s the right time for you to buy, and/or sell.
If you are selling, it’s key you have the largest pool of buyer candidates. Lower rates enable a larger segment of the population to afford homeownership. As rates drive higher, buyers who obtain a mortgage now need to spend more on a monthly basis. Once their monthly liabilities go up as a result of higher rates and monthly mortgage payments, they may be forced to look at lower price points, since they are now spending more on a monthly basis for the same mortgage loan amount they were seeking. This likely means that if you are thinking of selling in the near future, there’s no time like the present.
As a buyer, when you can afford and obtain more house for your dollars, as a result of lower rates, you have more flexibility to find the right property that may include more checklist items. If payments increase in line with rates you may find yourself curtailing your price point to adjust for the anticipated or actual higher rates.
Here is a breakdown of payment differentials at different interest rates on a $100,000 mortgage:
3.25% = 435.21
3.375% = 442.10
3.5% = 449.04
3.625% = 456.05
3.75% = 463.12
3.875% = 470.24
4% = 477.42
Continue the conversation:
In order to ensure you are in good position when the time comes to buy a home, I suggest ensuring you are in good shape financially and begin implementing and perfecting your mortgage strategy.
Yossi Notik at JPMorgan Chase is one of my favorite mortgage bankers. He is a great source of knowledge and always delivers white-glove service. I encourage you to call him with any questions and for a no cost pre-approval.
J.P. Morgan Chase
NMLS #: 36820
718.233.3883 – w
917.572.2124 – c
277 Park Avenue, 9th Floor, New York, NY 10172