Very low mortgage rates have been one of the defining aspects of the homes market in the past year or so. But for how much longer can this most welcome of trends continue?
The really good news is that rates have stayed low right through the first quarter of 2015 and there are still no really positive signs that they are due for an imminent, and at some stage inevitable, significant rise.
We do see occasional fluctuations in rates, in response to economic and international news that both have a direct effect on them, due to the attractiveness, or otherwise, of investors purchasing mortgage backed securities (MBS), which are seen as a “safe haven” investment in challenging conditions and much less attractive when all is well with the home economy and world scene.
Despite some notable relaxation of late, lending standards are still pretty exacting in comparison with the looser policies that led to recession. This means that a move in home loan fixed interest rates toward 5% would inevitably have an effect on credit availability as well as affordability for many buyers and possibly trigger falling house prices, something that the Government simply would not want to see, as the housing market is such a vital barometer for the economy as a whole. In such situations, we would be very likely to see new Federal Reserve intervention to keep rates low, such as happened until the beginning of last year with bulk MBS purchases.
Put another way, although we will eventually see rates moving towards 5%, there are going to need to be strong economic conditions to support that, whereby a high percentage of buyers will still be able to demonstrate affordability and a willingness to purchase at that level.
As recently as last week, the Federal Reserve made comments that were widely interpreted by investors to mean that rates will not rise as quickly as previously expected.
All that being said, the economy is showing some really positive signs of health, so we are still moving closer to the time when rates may start to rise.
Also, if lending standards were to slacken further – always a possibility – then the resulting higher demand for homes could possibly trigger a steady rate rise.
In reality, mortgage rates are affected by a wide range of influences. In recent months, it has pretty much been a case of what is lost on the swings is regained on the roundabouts. For example, in 2014 positive economic news at home was offset by international tensions, especially the conflict in Ukraine and continuing financial crisis in Europe. All these distant factors have a very direct effect on the mortgage rate you are quoted.
As a home seller and/or buyer, you can therefore have good confidence that rates are going to remain attractive for the forseeable future, with the caveat that they can still rise very suddenly due to unforeseen circumstances.
There has rarely, if ever, been a better time to buy or sell than right now. The market is buoyant, buyer sentiment is high, sellers are motivated. Why wait? Call us today and get things underway.