Everybody Calm Down
At the end of last year, the Federal Reserve did something ghastly! They raised rates by a whole .25%. Egad! (I believe that’s an Olde English word meaning, “what the heck!”) Before we get our English riding pants in a twist, let me put something in perspective: this rate increase is only the second one in A DECADE. I know some of you are saying, “Sure, but they’ve already indicated that they are going to raise the rates THREE TIMES in 2017!”
That indication from the Fed explains the recent National Housing Survey from Fannie Mae which reveals that 60% of consumers believe mortgage rates will head north (no, they’re not talking about the rates upping sticks and moving to Canada) in the next 12 months. Although unlikely, mortgage rates COULD spike to 5% in response to the Fed’s three increases – that’s about where it was in 2010.
Since 1971, the benchmark rate has averaged at 8.25% – that’s a good 3.25% HIGHER than the worst-case scenario for 2017 that some are projecting. Want something else to give you a warm fuzzy about our present and near-future circumstances? In 1981, 16.63% was the average rate for a 30-year fixed-rate mortgage. Last I checked, lots of people bought lots of houses back in the ’80s.
Want another shot of the warm fuzzies? The number of mortgage applicants getting approved has reached record highs – that’s a DEFINITE sign of a continued loosening of credit and lending requirements. What’s more is that this will be a good year for folks seeking to finance more expensive homes with Fannie and Freddie (they sound like an old married couple where one of them gives the neighbor kids candy while the other tells them to get off their lawn) raising the limits on the loans they’ll purchase from $417,000 to $424,100. An older couple like Fan and Fred doesn’t increase that lending limit by even a dollar without A LOT of confidence in the market – they wouldn’t be able to keep buying candy for the neighbor kids and maintain such a lovely green lawn if they weren’t careful with their money.
I can’t see into the future – and it has nothing to do with the tinfoil hat I wear on occasion to keep the government satellites from reading my thoughts – but I think it’s safe to say 2017 will most likely see a slight increase in the mortgage rate. While I don’t believe it’s a possible rate increase that will present you with a challenge, I do believe that the increasing values of homes will – their value is outpacing the growth in most people’s wages. Buying now (or in the very near future) will get a better price and allow you to build equity much more quickly. And if you end up buying the house next to Fan and Fred, let me know what he uses on his lawn to get it looking that green.