What does the outcome of this year’s election have to do with you and real estate? Nothing, unless you’re thinking about refinancing or purchasing a home. Mortgage rates are climbing since the election, and they’re expected to continue to climb in the new year. However, they’re not expected to keep shooting upward.
So if you are in the market to buy a home, should you rush to lock in a mortgage rate now before they go up any higher? Is it possible that they will fall?
Should You Lock in Mortgage Rates Now or Hope for a Bounce Later?
As of November 16, 2016, rates climbed nearly 0.2% since the election. They climbed to 3.95% for 30-year fixed-rate mortgages of $417,000 or less, according to the Mortgage Bankers Association. They haven’t been this high since January. That may not sound like much, but as interest rates go, even a little can add up. Rising interest rates mean higher monthly mortgage payments. Buyers are obviously leary. The number of mortgage applications dropped by 10%. Refinance applications dropped by 11%.
Rates are still low, and buyers shouldn’t be deterred from buying a house. If you’re one of those leary buyers, think about this. In 1979, the mortgage rates were more than four times what they are today. Compare the rate of 16.75% to 3.95%, for example. That’s quite a difference, right?
Why Do Mortgage Rates Rise?
Mortgage rates rise because they typically follow the bond market. After Donald Trump won the presidential election, bond prices plunged and stocks started soaring. Many investors chose to get out of bonds and into the stock market. They expect that the economy will improve under his presidency which could increase inflation and lessen the value of the bonds. And there you have it: the reason why mortgage rates rise.
Does the Rise in Mortgage Rates Affect Homebuyers in Other Ways?
Yes. The rise in rates will affect borrowers’ debt-to-income ratios since buyers will be obligated to pay bigger bills each month. This affects a borrower’s credit score and cause lenders to approve smaller loans.
If You’re in the Market to Buy, Stay Calm and Keep Buying
No one really has any idea what’s going to happen, but if you’re planning to buy a home, be encouraged to keep looking. Read this housing economist’s perspective here: Postelection Prescription: Stay Calm and Keep Buying Homes.
Mortgage rates are always fluctuating. Most people either refinance when the rates go down or move within five to seven years no matter what the mortgage rates were when they purchased their home.
Although mortgage rates are on the rise, keep calm and keep pursuing your dream home. With over 30 years’ worth experience in the Brooklyn real estate market, Charles has seen the interest rates rise and fall. Call Charles D’Alessandro, your Brooklyn real estate agent with Fillmore Real Estate at (718) 253-9600 ext. 206 or email [email protected] with all of your questions today.