Current Mortgage Rates Won't Last Forever..

According to FreddieMac, the interest rate for a 30 year fixed rate mortgage at the beginning of April was 4.4%. However, FreddieMac predicts that mortgage rates will steadily climb over the next six quarters.

Let’s assume you want to purchase a home for $500,000 with a 20% down payment ($100,000). That would leave you with a $400,000 mortgage. What happens if you wait to buy this dream house?

Prices are projected to increase over the next year and a half. However, for this example, let’s assume prices remain the same. Your mortgage payment will still increase as mortgage rates climb to more historically normal levels.

This table shows how a principal and interest payment is impacted by a rise in interest rates:

Homeownership's Impact on Net Worth

Over the last six years, homeownership has lost some of its allure as a financial investment. As homeowners suffered through the housing bust, more and more began to question whether owning a home was truly a good way to build wealth. A study by the Federal Reserve formally answered this question.

Some of the findings revealed in their report:

• The average American family has a net worth of $77,300
• Of that net worth, 61.4% ($47,500) of it is in home equity
• A homeowner’s net worth is over thirty times greater than that of a renter
• The average homeowner has a net worth of $174,500 while the average net worth of a renter is $5,100

Bottom Line

The Fed study found that homeownership is still a great way for a family to build wealth in America.

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Moving Up? Do it NOW not Later

A recent study revealed that the number of existing home owners planning to buy a home this year is about to increase dramatically. Some are moving up, some are downsizing and others are making a lateral move. Another study shows that over 75% of these buyers will, in fact, be in that first category: a move-up buyer. We want to address this group of buyers in today’s blog post.

There is no way for us to predict the future but we can look at what happened over the last year. Let’s look at buyers that considered moving up last year but decided to wait instead.

Assume they had a home worth $300,000 and were looking at a home for $400,000 (putting 10% down they would get a mortgage of $360,000). By waiting, their house appreciated by 13.8% over the last year (national average based on the Case Shiller Pricing Index). Their home would now be worth $341,400. But, the $400,000 home would now be worth $455,200 (requiring a mortgage of $409,680).

Here is a table showing what additional monthly cost would be incurred by waiting:

Prices are projected to appreciate by over 4% and interest rates are also expected to rise by as much as another full percentage point. If your family plans to move-up to a nicer or bigger home this year, it may make sense to move now rather than later.

Mortgage Rates Projected to Rise as Tapering Continues

It is projected that if the Fed continues to cut back on bond purchases that long term mortage rates would start to climb. Many experts felt that Janet Yellen, who replaced Ben Bernanke as Fed Chair, was going to be less inclined to continue tapering bond purchases at the level established.

However in her testimony in front of the Financial Services Committee last week, Yellen made it quite clear that she will in fact continue the current pace of tapering:

“In December, the Committee judged that the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases, from $45 billion to $40 billion per month of longer-term Treasury securities and from $40 billion to $35 billion per month of agency mortgage-backed securities. At its January meeting, the Committee decided to make additional reductions of the same magnitude. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.”
 
What does that mean to a prospective purchaser? Currently, Freddie Mac’s 30 year rate is at 4.28%. Here are the projected interest rates for this time next year:

More Americans Confident about Home Buying

Last week, Fannie Mae released their January 2014 National Housing Survey results.  Two categories reported all-time survey highs.

• 52% of respondents thought it would be easy for them to get a home mortgage today
• 70% of respondents said they would buy if they were going to move

Doug Duncan, senior vice president and chief economist at Fannie Mae explained what this may mean to the real estate market moving forward:

“A majority of consumers now believe that it is getting easier to get a mortgage. For the first time in the National Housing Survey’s three-and-a-half-year history, the share of respondents who said it is easy to get a mortgage surpassed the 50-percent mark. The gradual upward trend in this indicator during the last few months bodes well for the housing recovery and may be contributing to this month’s increase in consumers’ intention to buy rather than rent their next home. The dip in overall home price expectations, though notable, is consistent with our view of moderating home price gains this year from a robust pace last year, while positive trends in perceptions about the economy and personal finances over the next year support our view of stronger growth in the broader economy.”

With home prices projected to increase in 2014 (albeit at a slower pace than they did in 2013) and with mortgage interest rates projected to increase, it is good news that consumers are becoming more confident in their ability to buy a home if they so desire.

 

 If you are looking to buy or sell a home:
 call Christie Farris at 225-315-9003 or email at Christiefarris@gmail.com