This year we can expect mortgage interest rates to rise. The reason being is that over the past several years, the federal interest rates which correlate to the mortgage rates have risen at a greater rate. As a result, the difference between these rates has shrunk to a point where there is no longer any buffer remaining for the gap to shrink further.
In 2018, the federal government has released that they intend to raise their rates three or four times. With each rate increase we can expect to see a corresponding mortgage rate increase as well. This could easily put people looking for a home loan squarely in the 5% interest range by the end of the year.
Buyers, Don’t Delay
If you were thinking of buying a home, or were thinking about thinking about buying a home; don’t delay! Today, most qualified buyers can lock in a 30 year fixed rate loan for around 4.25%. Should the predictions hold true and we get to 5% by the end of this year, the additional 0.75% could be the difference between you getting your dream home or not.
When rates rise is causes changes in affordability of homes. What that means is that people who would qualify to purchase a home for $300,000 at 4.25% might very well not qualify for a $300,000 home at 5%. This forces the buyer to look for homes at a lower price point that may not have all the features they are looking for.
Never fear, even though the market is in the state of flux, it isn’t too late to lock in a good rate today. I would suggest acting sooner rather than later.
Sellers, Get it Sold
Just as I advised the buyers to act quickly, I have the same message for sellers but with different reasoning. Joe Seller is thinking of putting his home up for sale. He could put it up today and maximize his return by working with the surplus of savy buyers who are looking to purchase before rates go any higher, or he could sit on his hands for a few months. In a few months, Joe will find that a lot of his neighbors have been able to sell there home and now when Joe lists his, he finds little interest. Why is this you ask? Because the buyer pool has dried up at this point. The increased rates have made buyers seriously consider if they want to own or rent and many of them are shying away from the higher rates and opting to rent in hopes that the rates will come back down.
The moral of this story is don’t be like Joe, get your home listed so you can unlock the equity now. Should you need to buy another place, then you fall into the buyer category and that puts even more urgency on you to move. This isn’t meant to scare you, simply inform you so you can make the wisest decisions.
Investors, Buy and Hold
With this shift in the market, smart investor dollars are going to be on snapping up prime properties now and locking in advantageous interest rates, then rent those homes out when the market shift hits and pocket the rental income!
If you are looking into real estate as an investment vehicle I highly recommend it. You build equity, you generate monthly recurring income and when you purchase the right properties and hold them over time you enjoy the appreciation.
Are there going to be homes for sale in the future? Yes. Are people going to be able to afford these homes? Yes.
So don’t panic and rush into a decsion that you may regret down the road. Take this information and use it to build your real estate strategy for 2018. If you were already looking to make a move, then great, possibly consider doing it earlier this year. Were you thinking about thinking about making a move, well maybe this might indicate that it’s a good time to start making a plan and evaluating an option. If you aren’t going to be making a move, that’s cool to; use this time to make improvements to your home to build equity for when you do decide to sell.
Have an amazing 2018!