Why Are Mortgage Interest Rates Increasing?

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According to Freddie Mac’s latest Primary Mortgage Market Survey, the 30-year fixed rate mortgage interest rate jumped up to 3.94% last week. Interest rates had been hovering around 3.5% since June, and many are wondering why there has been such a significant increase so quickly.

Why did rates go up?

Whenever there is a presidential election, there is uncertainty in the markets as to who will win. One way that this is noticeable is through the actions of investors. As we get closer to the first Tuesday of November, many investors pull their funds from the more volatile and less predictive stock market and instead, choose to invest in Treasury Bonds. When this happens, the interest rate on Treasury Bonds does not have to be as high to entice investors to buy them, so interest rates go down. Once the elections are over and a President has been elected, investors return to the stock market and other investments, leaving the Treasury to raise rates to make bonds more attractive again. Simply put, the better the economy, the higher interest rates will go. For a more detailed explanation of the many factors that contribute to whether interest rates go up or down, you can follow this link to Investopedia.

The Good News

Even though rates are closer to 4% than they have been in nearly 6 months, they are still slightly below where we started 2016, at 3.97%. The great news is that even at 4%, rates are still significantly lower than they have been over the last 4 decades, as you can see in the chart below.2

Any increase in interest rate will impact your monthly housing costs when you secure a mortgage to buy your home. A recent Wall Street Journal article points out that, “While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.” Tom Simons, a Senior Economist at Jefferies LLC, touched on another possible outcome for higher rates:

“First-time buyers look at the monthly total, at what they can afford, so if the mortgage is eaten up by a higher interest expense then there’s less left over for price, for the principal. Buyers will be shopping in a lower price bracket; thus demand could shift a bit.”

Bottom Line

Interest rates are impacted by many factors, and even though they have increased recently,rates would have to reach 9.1% for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Percentage of Homeownership by Decade and by State

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There has been a lot of talk about the falling homeownership rate in the United States. In December 2004, the homeownership rate reached an all-time high of 69.4%, while the current rate is 62.9%. When comparing these two figures, there is some room for concern regarding the difference. However, today we want to shine some light on the issue by:

  1. Showing what historic homeownership rates have looked like over the last 130 years.
  2. Breaking down the current percentages by state.

Historic Homeownership Rates:

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Current Homeownership Rates by State:

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All of the states that you see in blue on the map above have a greater homeownership rate than the national average.

Bottom Line

Though the homeownership rate has fallen recently, the percentage is still at a healthy rate compared to historic numbers, and most states currently have a higher percentage than the national average.

Sales of Distressed Properties Hit New Low

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The National Association of Realtors (NAR) recently released their latest Existing Home Sales Report revealing that distressed property sales accounted for 4% of sales in September. This is down from 7% in 2015, and is the lowest figure since NAR began tracking distressed sales in October 2008. Below is a graph that shows just how far the market has come since January 2012 when distressed sales accounted for 35% of all sales.

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Existing Home Sales Hit 2nd Highest Figure Since June

Mortgage interest rates remained well below 4% in September at 3.46%, prompting existing home sales to stay at a healthy annual pace of 5.47 million. Month-over-month sales were up 3.2%. Inventory of homes for sale remains below the 6-month supply that is necessary for a normal market, as it fell 2.2% to a 4.5-month supply. The shortage in inventory has contributed to the median home price rising an additional 5.6% to $234,200. NAR’s Chief Economist, Lawrence Yun had this to say about the lack of inventory:

“Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in.”

There is good news though, as Yun went on to say:

“There’s hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring. The market fundamentals — primarily consistent job gains and affordable mortgage rates — are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate.”

Bottom Line

If you are debating putting your home on the market this year, now may be the time. Buyers are still out there looking for their dream home. Meet with a local real estate professional who can help you determine your best plan.

The Past, Present & Future of Home Prices

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CoreLogic released their most current Home Price Index last week. In the report, they revealed home appreciation in three categories: percentage appreciation over the last year, over the last month and projected over the next twelve months. Here are state maps for each category:

The Past – home appreciation over the last 12 months

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The Present – home appreciation over the last month

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The Future – home appreciation projected over the next 12 months

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Bottom Line

Homes across the country are appreciating at different rates. If you plan on relocating to another state and are waiting for your home to appreciate more, you need to know that the home you will buy in another state may be appreciating even faster. Meet with a local real estate professional who can help you determine your next steps.

2 Myths About Mortgages That May Be Holding Back Buyers

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Fannie Mae’s “What do consumers know about the Mortgage Qualification Criteria?” Study revealed that Americans are misinformed about what is required to qualify for a mortgage when purchasing a home.

Myth #1: “I Need a 20% Down Payment”

Fannie Mae’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 76% of Americans either don’t know (40%) or are misinformed (36%) about the minimum down payment required. Many believe that they need at least 20% down to buy their dream home. New programs actually let buyers put down as little as 3%. Below are the results of a Digital Risk survey of Millennials who recently purchased a home. As you can see, 64.2% were able to purchase their home by putting down less than 20%, with 43.8% putting down less than 10%!

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Myth #2: “I need a 780 FICO Score or Higher to Buy”

The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO score is necessary to qualify. Many Americans believe a ‘good’ credit score is 780 or higher. To help debunk this myth, let’s take a look at the latest Ellie Mae Origination Insight Report, which focuses on recently closed (approved) loans. As you can see below, 54.1% of approved mortgages had a credit score of 600-749.

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Bottom Line

Whether buying your first home or moving up to your dream home, knowing your options will definitely make the mortgage process easier. Your dream home may already be within your reach.

Why Do-It-Yourself Real Estate Isn’t Wise

Why Do-It-Yourself Real Estate Isn’t Wise

I have posted many resources on selling your home or buying a home on your own.  If you read through my posts and articles, you will see why I am against it…and it never has to do with the fact I am a Realtor…it’s all about your protection!  I found this article recently and feel it does a good job shedding some insight on why it is a bad idea.

Why Do-It-Yourself Real Estate Isn’t Wise

Written by Phoebe Chongchua on Friday, 14 June 2013 00:00

fsboI am all for do-it-yourself projects. If you can save a little money and learn how to do something that will be a useful skill in the future…I say, go for it! But not all projects should be tossed into the pool of do-it-yourself (DIY) tasks.

There are a number of reasons why some DIY projects turn into a nightmare that results in more time, energy, and money spent trying to clean up the mess than if you’d hired a professional in the first place. As a business owner of a video production company, I’ve seen this happen too many times. Professionals who work in specialized fields are used to doing their jobs. They can create a video, for instance, quickly and efficiently whereas a novice might take months to get it done and then it looks like amateur work. That can mean lost time, money, and, in the end, the main gain is tons of frustration.

This same idea is why DIY real estate isn’t likely to be a wise choice for most people. Shopping for a home or selling a home requires a good amount of knowledge about the industry, the neighborhood, marketing, negotiation, home staging, and more. Most consumers simply don’t have all those skills and when it comes to buying or selling their own home, whatever skills they have can be compromised because personal emotions get involved.

A common mistake DIY (or for-sale-by-owners) sellers make is pricing their homes too high. Often sellers look at how much they owe on their homes and try to work backward from there to determine a price. The problem with that is, the buyer isn’t concerned with how much the seller owes. The buyer is comparing the home to those in the neighborhood. But often cash-strapped sellers are looking to make a bit more so they may try to push the price higher in hopes of creating more cash flow.

Listing a home for more than its competitive value can prove to be very unsuccessful. A lot of times, an overpriced home will get very few showings. The longer it sits on the market, the more “stale” it gets. When buyers and their agents see this, they often know to play the waiting game and let the humble fall begin for the seller. Eventually, there will be price reductions. How quickly this happens will depend on how motivated the seller is to close on the home.

Another reason hiring a professional real estate agent to handle your real estate transactions is smart is that it gives you an ally and someone to answer your questions. These days, real estate paperwork is getting more complicated and plentiful. When you attempt to go it alone, you’re taking on a lot of responsibility and risking making some very big and potentially costly mistakes.

I always recommend getting a firm understanding and education about any project you’re working on even if experts are hired. For instance, I had a water pressure plumbing issue recently and learned that even our own city officials didn’t completely understand the plumbing solution that was needed. By talking with experts and doing some research, I may have saved myself from some even bigger plumbing issues down the road. But I didn’t tackle this problem alone… I hired experts who had the job done in a few hours. The difference was not only receiving peace of mind but also quality care and expertise. A home is a major purchase/sale. Choose wisely how you proceed through the transaction.