Category: Interest Rates (page 1 of 4)

FHA and Conventional Mortgage Options – Which is Better?

I’m often asked about the different types of loans available for those with a limited down payment. The main options are Fannie Mae and Freddie Mac conventional mortgages or FHA loans. But which one is best?

The FHA versus conventional analysis involves taking a look at your credit score, your available down payment, and your long-term financial goals.

Let’s take a look at all 3 issues:

1. Credit score – buyers with low-to-average credit scores may be better off with an FHA loan. FHA mortgage rates are generally slightly lower than conventional ones for applicants with lower credit, and FHA loans allow credit scores down to 580.

2. Down payment – borrowers can come in with a lower down payment with conventional products, at just 3% down. FHA requires 3.5% percent down.

3. Long-term goals – conventional mortgage insurance can be cancelled when the home achieves 20% equity. FHA mortgage insurance is payable for the life of the loan and can only be canceled with a refinance. Buyers who plan to stay in the home five to ten years may opt for conventional, as the FHA mortgage insurance can add up over time.

For a more, I’d invite you to visit the source at The Mortgage Reports and Dan Green’s post.

FHA Or Conventional – Which is Superior?

There are a multitude of low-down payment options for today’s home buyers but most will choose between the FHA 3.5% down payment program and conventional options such as HomeReady, Home Possible, and Conventional 97.

So, which loan is better? That will depend on your circumstance.

For example, in deciding between an FHA loan and a conventional option, the borrower’s individual credit score matters greatly. This is because the credit score determines whether the borrower is program-eligible; and, it affects the monthly mortgage payment, too.

FHA loans are available with credit scores of 580 or better. The conventional options, by contrast, require a minimum credit score of 620.

Therefore, if your credit score is between 580 and 620, the FHA loan is essentially the only available option.

As your credit score increases, though, the conventional options become more attractive. Your mortgage rate drops due to the lower score and your mortgage insurance costs do, too. This is different from how FHA loans work.

You can find out much more about mortgage insurance here….

With an FHA loan, your mortgage rate and MIP cost the same no matter what your FICO score.

Therefore, over the long-term, borrowers with above-average credit score will typically find conventional loans more economical relative to FHA ones.

In the short-term, though, FHA loans generally win out.

A Second Thought

One main consideration has to be the length of time you would expect to “keep” this mortgage.

Borrowers should take into consideration that FHA MIP is forever but conventional mortgage insurance goes away at 80% loan-to-value. This means that, over time, your conventional option can become a better value — especially for borrowers with high credit scores.

It’s hard to know for how long you’ll hold a loan, though. Sometimes, we expect to live in a home for the rest of our lives and then our circumstances change. Or, sometimes mortgage rates drop and we’ve given the opportunity to refinance.

As a general rule, though, in rising-value housing market, if you plan to stay in the same home with the same mortgage for longer than six years, the conventional 97 may be your better long-term fit.

One other thing to consider is upfront charges.

The FHA charges a separate mortgage insurance premium at the time of closing known as Upfront MIP. Upfront MIP costs 1.75% of your loan size, is generally added to your balance, and is non-recoverable except via the FHA Streamline Refinance.

Upfront MIP is a cost. The conventional versions do not charge a fee.

FHA vs Conventional Infographic

Image Courtesy of The Mortgage Reports

You can find out much, much more about low-down payment options, as well as the specifics of these loans here.

For today’s low down payment home buyers, there are scenarios in which the FHA loan is what’s best for financing and there are others in which the conventional option is the clear winner. Rates for both products should be reviewed and evaluated.

It would be my pleasure to help you find the version that’s most optimal for your situation, so please do contact me for more details!

Rising Interest Rates and Increasing Property Values – Updated Forecast 2018-2019

October 7, 2018 / Tom Bonetto / 0 Comments

The question asked to me most often over the last few months is “is now a good time to buy?”

Many potential buyers are concerned about rising rates and property values. And yes – both are going up.

My answer to their question might surprise you – as I truly believe now is a great time to purchase real estate.

Purchasing Today – Why Now?

It was clearly more advantageous to purchase real estate last year, when looking through the rear view mirror. But I’m convinced that purchasing today will be MUCH better than this time next year.

Why? Well, for one, property values are increasing at over 5% per year, so that home you are looking at today will most likely be 4-5% more expensive next year.

Secondly, the Federal Reserve has signaled 3 to 4 more interest rate hikes over the next 15 months, the next most likely coming in December of this year.

So, let’s be clear about the fact that most experts agree that both prices and rates will most likely be higher next year versus today.

Why the shift? Read on for more….

First: The Good News – and There’s Lots of It

Unemployment is at it’s lowest level since 1969.

“This is the best job market in a generation or more,” said Andrew Chamberlain, chief economist at recruiting site Glassdoor.

Unemployment rates below 4% are extremely rare in 70 years of modern record-keeping. The two longest sustained periods came during the Korean and Vietnam Wars, when the combination of strong growth and the enlistment of young men from the civilian labor force helped to largely wring unemployment out of the economy.

Real wages were up nearly 3% in August of this year.

Per the Wall St. Journal, the Atlanta Fed’s “wage tracker” showed a 3.2% increase year-over-year for June. Most encouraging is the report of a bounce in labor productivity growth in the second quarter to 2.9%. That’s the best jump since the first quarter of 2015,

Home prices are rising steadily at over 5% year-over-year.

Home price gains are starting to decelerate (they are growing, but at a slower rate than last year)— but they’re still strong and are running well ahead of wage gains and inflation.

Inflation, the arch enemy of bonds and interest rates – is holding at the federal reserve target of 2%.

In a speech last week, Fed Chairman Jerome Powell suggested he sees little urgency to accelerate the central bank’s pace of interest-rate increases or to signal a more restrictive policy path ahead, in part because inflation is so low and stable.

Rates Today – and What We Can Expect

The stronger than expected economic data released over the last weeks and months are actually bad news for mortgage rates, and rates reached their highest levels in many years.

Last Wednesday’s bond rout sent the yield on the 10-year U.S. Treasury note, a closely watched barometer of investors’ sentiment toward growth and inflation, to its highest level since July 2011. Risky assets rallied, pushing the Dow Jones Industrial Average to a record and crude-oil prices to multiyear highs.

Together, the moves suggested investors are once again growing more and more about future growth, a shift from the more cautious outlook that many held for much of the year.

Interestingly, mortgage interest rates don’t necessarily move in step with the federal funds rate, as they are more closely tied to the 10-year Treasury Bond. So, borrowers today looking to get a mortgage aren’t directly affected by the latest Fed hike.

However, the federal funds rate does contribute to the longer-term trends of the 10-year Treasury, and long-term fixed mortgages as a result.

Here’s a little perspective on average mortgage rates since 2000:

Graph Courtesy MarketWatch

With the Fed likely lifting rates multiple times over the next year plus, the trend for long-term mortgage rates is up. It would not surprise me to see 6% interest rates in 2019.

Here’s a piece I wrote earlier this year that outlines more regarding rates and what we can expect in 2019…

The Bond Market and Interest Rates

The U.S. unemployment rate fell to 3.7%, its lowest level since 1969, the Labor Department reported Friday. Average hourly earnings, meanwhile, rose a seasonally adjusted 0.3% from August—the third straight month of solid, inflation-beating gains.

Fed officials raised their benchmark short-term rate last week and penciled in four more quarter-percentage-point increases through the end of 2019. That would lift the rate to a range between 3% and 3.25%. Until recently, many investors doubted the Fed would go that far.

The Fed is raising rates to keep the economy from overheating. If the economy becomes “too strong”, that could send inflation higher, and the Fed doesn’t want that to happen. They combat inflation by raising interest rates.

In essence, the bond market is starting to believe the Federal Reserve.

Finally, I’d invite you to read this article on how rising interest rates are not deterring buyers in today’s market…

What About Another Bubble?

Many clients are talking about a potential bubble, and they don’t want to be on the wrong side of it, if it were to burst.

However, most economists are not the slightest bit concerned about this.

Why? It’s about supply and demand. And the supply is tight. It isn’t forecasted to meet demand until sometime in 2021 or beyond.

Actually, it’s the lack of supply and the accompanying home prices quickly rising are the sources of market headaches. Remember your Economics 101 class on supply and demand? When supply is down and demand increases, prices move up.

In reality, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also portends no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is steadily addressed.

As to new home building activity, housing starts did fall by a double-digit percentage in June, as mentioned above, but are up 7.8% year-to-date to June.

More will need to be built, as there is still a shortage. As more homes are built, an additional boost will be provided to the local economy along with more local job creations.

In Conclusion

So, it is safe to say that we will continue to see pressures in the bond market and mortgage interest rates overall. These increases do look to be gradual for the time being, but consistent and into 2019, for sure.

With that said, home prices are increasing nationally at over 5%, so the increase in interest rate will be more than offset by the increasing value of one’s home!

Secondly, home buying power is still extraordinarily high, despite rising home prices and rate hikes.

Find out more about that here.

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

References:

https://www.wsj.com/articles/bond-investors-catch-up-with-feds-plans-1538767826

https://www.forbes.com/sites/lawrenceyun/2018/08/02/no-housing-recession-over-horizon/#3d8212a5f79c

https://www.wsj.com/articles/real-wages-are-rising-1536359667

Rising Interest Rates Aren’t Deterring Buyers

September 10, 2018 / Tom Bonetto / 0 Comments

Mortgage interest rates have risen consistently over the last year-and-a-half. At that time, rates for the 30-year fixed were just under 4%. Lately, the average is closing in on 5% percent for a 30-year fixed-rate mortgage.

Let’s take a look at the facts and crunch the numbers. You’ll likely find that minor rate fluctuations won’t affect a buyer’s ability to purchase a home

Despite these rising mortgage rates, there’s good news:

Rising mortgage rates don’t have to stifle the buyer’s dream of owning
In fact, a new study by Redfin shows that rising rates aren’t scaring off many shoppers
Rates remain historically very affordable, even if they are a bit higher today

Source: You can find out more here – by reading Erik Martin’s entire piece at The Mortgage Reports

What the research found on interest rates and purchasing patterns

A recent survey of potential buyers by Redfin reveals some interesting findings:

Only one in 20 would call off their search if rates rose above 5 percent
One in four said such an increase would have no impact on their search
Nineteen percent would increase their urgency to find a home before further rate increases
Twenty-one percent would look in other areas or search for a more affordable home
One-third would slow down their search to see if rates came back down

This means that many buyers understand the environment today – and realize the long-term benefits of home ownership.

How to read the data

Taylor Marr, senior economist at Redfin, says these results are telling.

“Only a small share of buyers will scrap their plans to buy a home if rates surpass 5 percent. This reflects their determination to be a part of the housing market,” he notes.

Marr says buyers are well aware that rising mortgage rates mean slightly higher monthly payments. Yet buyers are willing to make compromises, as they understand that actual wages are higher today, making the purchase more affordable. Also, they know that real estate generally appreciates. Finally, today’s rates remain very low, compared to historical norms.

“By historical terms, 5 percent mortgages are not that high. A rate below 7 percent is really a good deal on long-term money,” Joshua Harris, clinical assistant professor of real estate at NYU’s Schack Institute of Real Estate, says. “Plus, rents are generally high. So even at 5 percent, many buyers will still be saving money on monthly housing costs.”

What buyers can do now

Most experts recommend the following steps:

Buy now if you can afford it – “While rates are going up, so are home prices in most markets,” says Harris. “The job market is great. Many are seeing wage growth in many sectors. These forces will push rates up and give people more money to spend on a house. So waiting can be a very costly decision if you need a house and don’t want to rent.”

Get your financial house together – start the pre-approval process and get qualified for a loan. “Ask questions and understand the monthly payments you’ll need to make,” suggests Suzanne Hollander, real estate attorney, broker and Florida International University instructor. Will your income be able to cover the principal, interest, taxes and insurance? Will it provide enough money to live the lifestyle you prefer?”

Don’t sweat a minor rate hike – “So long as you intend to hold the home for at least five years, these small fluctuations shouldn’t affect your decision to buy,” Harris adds.

With economic gains outpacing mortgage rate interest rates in many markets, you may be better able to buy a home today than at any time over the last 10 years. Don’t hesitate to reach out to me and find out more!

The Latest on Interest Rates for 2018 and 2019

July 5, 2018 / Tom Bonetto / 0 Comments

The Federal Reserve lifted the federal funds rate last month by a quarter percentage point to a range of 1.75 percent to 2 percent. The Fed has indicated that there will most likely be two more rate hikes this year.

Most financial experts expect the Federal Reserve to raise rates at least 3 times in 2019, as well.

Mortgage interest rates don’t necessarily move in step with the federal funds rate, as they are more closely tied to the 10-year Treasury Bond. So, borrowers today looking to get a mortgage aren’t directly affected by the latest Fed hike.

However, the federal funds rate does contribute to the longer-term trends of the 10-year Treasury, and long-term fixed mortgages as a result.

With the Fed likely lifting rates multiple times over the next couple of years, the trend for long-term mortgage rates is up.

Many experts are forecasting that mortgage rates could move near the 6% range sometime in 2019.

Why is the Federal Reserve raising rates?

Well, it’s a bit complicated, but there are some very good reasons – and they are all designed to help foster stable, economic growth.

‘Quantitative Tightening’

This seems to have helped the economy avert disaster, but their impacts were far from ideal. Nonetheless, the economy slowly lifted off as consumers rebuilt their balance sheets and asset values rose.

Today, the Fed is slowly reversing this stimulus program. They’re raising short-term rates and shrinking their bond and mortgage back securities portfolio.

The consensus thinking is that the Federal Reserve members fear that inflation will take hold if they keep interest rates artificially low.

However, when quantitative tightening began in October of 2017, the Fed started slowing down these reinvestments, allowing its balance sheet to gradually shrink.

In theory, through unwinding its balance sheet slowly by just allowing the bonds it owns to mature, the Fed can attempt to mitigate the fear of what might happen to yields if it was to ever try and sell such a large amount of bonds directly.

Essentially, the Federal Reserve is changing the supply and demand curve and the result is a higher yield in the 10-year treasury note.

Inflation and Interest Rates

Inflation is beginning to inch up as the labor market continues to improve. Most indicators suggest inflation has been climbing in recent months. If you look at both the Producer Price Index and the Consumer Price Index, you will see the trends.

This is a general reflection better economic data, rising energy prices, and increased employment.

Rising inflation is a threat to government bond investors because it chips away at the purchasing power of their fixed interest payments. As mentioned earlier, the 10-year Treasury yield is watched particularly closely because it is a bedrock of global finance. It is key in influencing borrowing rates for consumers, businesses and state and local governments.

Positive labor and economic news keeps coming in (as predicted over the last 6 months), and the prospect of inflation will put pressure on bonds and interest rates.

What It All Means

With that said, home prices are increasing nationally at nearly 6%, so the increase in interest rate will be more than offset by the increasing value of one’s home!

Secondly, home buying power is still extraordinarily high, despite rising home prices and rate hikes. Find out more about that here.

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

Home Buying Power Still High, Despite Rising Prices and Rates

June 10, 2018 / Tom Bonetto / 0 Comments

I’m receiving calls and questions all the time regarding mortgage qualification and home buying in today’s changing interest rate and price appreciation marketplace.

Your home buying power is the result of several variables – but there’s great news today when you consider increased income and historically low mortgage rates.

I’m linking today to an article by Amy Hale of The Mortgage Reports that really nails the answer. Go here for the entire article – and I’ve highlighted the key pieces below.

Are home prices really that high?

It might seem like home prices just keep rising, but according to the historical numbers, today’s housing is actually very affordable. “Real” home prices—those adjusted for income and interests rate changes—are currently 32.5 percent below their housing boom peak from 2006.

Home buyers still hold the power

According to the latest First American Real House Price Index, which aims to measure overall housing affordability by considering changes in income, interest rate and actual home prices, consumer home buying power is still strong.

“While unadjusted house prices have been on the rise since the end of 2011, nearly a seven-year run, consumer house-buying power has also increased by 14.3 percent over the same period,” said Mark Fleming, First American’s chief economist.

“House-buying power, how much one can buy based on changes in income and interest rates, has benefited from a decline in mortgage rates since 2011, and the more recent slow, but steady growth of household income.”

Buying power is actually up significantly from 2011 because real wages have actually increased over that time – household income has risen nearly 20% over the last 7 years. Also, mortgage lenders have relaxed some of the tight requirements and ratios for qualification. This combination makes it a great time for buyers and borrowers.

The real story on home prices

Overall, “real” home prices aren’t even close to their historical peak. In fact, according to Fleming, they’re currently 32.5 percent below July 2006’s prices and 9 percent lower than in January 2000.

Don’t let sticker prices fool you. American home buying power is still high. Want to get in on the market? Reach out to me for some answers, as it would be my privilege to help!

Today’s Mortgage and Real Estate Environment – Early Summer 2018 Edition

May 7, 2018 / Tom Bonetto / 0 Comments

Believe me, I understand that home inventories are tight across the country. And that is making home buying a bit challenging right now.

Nevertheless, I see a great opportunity in this market for first time buyers, investors, and existing homeowners who want to take advantage of rising equity.

Look at it this way….real wages are moving up, home equity is rising, and interest rates are keeping inflation at bay.

The Current Outlook

This is a recipe for a strong, long-term real estate market.

A decade ago, the housing market was the U.S. economy’s biggest weakness. Now, it offers crucial support.

The housing market has been trending on a path higher for some time now as it gradually recovered from the financial meltdown nearly a decade ago. Interestingly, it has even gained additional strength lately, despite broadly higher home prices.

This is due to the fact that owning a home right now is one of the better investments you can make.

Some analysts are saying that a rise in mortgage rates, prompted by higher Treasury yields and inflationary pressure, could eventually cut into demand for new homes.

The benchmark 30-year fixed mortgage hit nearly 5% at the end of April, its highest since early 2014, according to weekly data from Bankrate.com. As recently as September, it was right at 4%.

Still, the economy is much stronger than it was the last time rates spiked in 2013, which means the housing market has more ability to withstand higher mortgage rates than it used to, most analysts say.

As a matter of fact, real wages are up for the first time in 10 years, giving would-be buyers more purchasing power.

Couple that with expected equity increases in those home purchases, this looks to be a fantastic time to purchase.

The Data

Industry experts are also predicting an increase in purchases. Industry giant Zillow predicts that 2018 will shape up to be an even hotter real estate market than in 2017.

An analysis conducted by Zillow Research, a division of Zillow Group that operates the Zillow real estate marketplace, found that homes sold faster than ever in 2017 largely due to shrinking inventory.

Rising Rents Means It’s Time To Buy

The analysis has shown that rents have been increasing consistently the past three to four years. In the last year, for example, rents have over increased 4% nationwide.

That’s not necessarily a giant jump, but those increases year after year add up. If buyers can lock-in a monthly mortgage, that alone is a huge incentive to get into the home buying market.

Per Forbes Magazine: “according to an online survey of more than 1,000 active buyers conducted in early March by Toluna Research for realtor.com, 23% of millennials surveyed indicated that rising rent was a trigger for their home buying purchase.

Realtor.com reports that HUD data shows rents were up in 85 of the top 100 metro areas, including nine metros where rents were up by double-digit percentages from a year ago.”

More from Forbes: “These are the market dynamics and challenges Millennials face especially in urban areas where they naturally migrate.

Craig Furfine, clinical professor of finance at Kellogg School, Northwestern University thinks differently. ‘An alternative viewpoint is Millennials have been reluctant to enter the housing market having witnessed the effects of the housing collapse of a decade ago. Now they see interest rates rising and they think now may be a good time to buy’.

Interestingly, just like their baby boomer parents, many Millennials want that family home with a yard and in a good school system. It seems like the foundation of home ownership desire hasn’t really changed in a long time.

Don’t hesitate to reach out to me for more, as it would be my privilege to help!

Homeowners See Biggest Equity Increase in 4 Years – Another Great Reason to Buy or Refinance

April 9, 2018 / Tom Bonetto / 0 Comments

Rising home prices might be a little frustrating for would-be buyers right now.

But let’s take a look what’s happening for those who already own a home to see the true benefits of ownership. Home equity increases are being seen throughout the country – and this bodes well for the economy – and those who purchase or refinance a home in the coming months.

According to new data from CoreLogic, the average homeowner saw their home equity jump by more than $15,000 last year alone – the biggest increase since 2013.

Aly Yale at The Mortgage Reports has put together a fantastic piece – see the entire article here.

It Pays to Own Your Home

According to CoreLogic’s recent Home Equity Report, American homeowners saw a 12 percent year-over-year jump in equity from 2016 to 2017. Though the average homeowner gained $15K in equity for the year, in some states, it rose as high as $44,000.

Frank Nothaft, CoreLogic’s chief economist, credits rising home prices for the uptick in equity.

“Home price growth has been the primary driver of home equity wealth creation,” Nothaft said. “The average growth in home equity was more than $15,000 during 2017, the most in four years.”

Though increased equity certainly spells good news for existing homeowners, it also bodes well for the country’s economy at large.

“Because wealth gains spur additional consumer purchases, the rise in home equity wealth during 2017 should add more than $50 billion to U.S. consumer spending over the next two to three years,” Nothaft said.

What This Means For Today’s Buyers

Owning a house provides the owner with a valuable asset and financial stability. By purchasing a home, you’ll have an asset that, in most cases, will appreciate in value over time. A $200,000 home today should see an increase in value to $250,000, $300,000, or more—depending on how long you plan to live there and market conditions.

This makes your home one of the best investments you can make and a way to establish a financial foundation for future generations (aka your kids).

A home can be the ultimate nest egg, providing you with a great investment for retirement. The longer you own your home, the more it should eventually be worth.

As you get older, you can sell the home and use the proceeds to purchase or rent something smaller. Another option: Rent out the house to maintain a steady income stream so you can travel or use for other recreational activities.

Why Now?

Despite rising home prices, American housing is actually quite affordable – and now is really a good time to make that purchase.

According to the latest Real House Price Index from First American Title, today’s home buyers have “historically high levels of house-purchasing power.”

And though real home prices increased 5 percent over the year, they’re still 37.7 percent below their 2006 peak. They’re also more than 16 percent below 2000’s numbers.

Because mortgage rates are lower than historical averages, home-buying power is up. Find out more regarding home affordability here….

The Refinance Market

As housing values across the country continue to steadily increase, homeowners now have access to a much larger source of equity.

With current mortgage rates low and home equity on the rise, many think it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well.

Since rising home values are returning lost equity to many homeowners, refinancing can make a good deal of sense with even a small difference in your interest rate. Homeowners now have options to do many things with the difference.

More home equity also means you won’t need to bring cash to the table to refinance. Furthermore, interest rates can be slightly lower when your loan-to-value ratio drops below 80 percent. Find out more about the new refinance movement here…

It would be my privilege to help would-be-buyers or refinancers understand the current marketplace and the loan options that can help you own a part of the American dream!

April 2, 2018

That House Will Probably Cost More The Longer You Wait

Today’s potential home buyers have many questions about local real estate markets and how it relates to the purchase of a new home. The one I hear the most is:

‘Does it make sense to buy a house in now, or would it be better to wait until next year?’

Click on the video above to find out more,

Well, there are some things we just can’t predict with certainty, and that includes future housing costs….however,

most economists and forecasters agree that home values will likely continue to rise throughout 2018 and into 2019. Secondly, these same experts also predict that interest rates will continue to rise.

Houses Are INCREASING in Value and Are Getting More Expensive

As usual, it’s a story of supply and demand. There is a high level of demand for housing in cities across the country, but there’s not enough inventory to meet it. As a result, home buyers in who delay their purchases until 2019 will likely encounter higher housing costs.

According to Zillow, the real estate information company, the median home value for Arizona increased to over $233,000 – a year-over-year increase of 6.7%. In California, the median home value is over $465,000 – an increase of 8.8%. Looking forward, the company’s economists expect the median to rise by another nearly 5% over the next 12 months. This particular forecast projects into the first quarter of 2019.

Other forecasters have echoed this sentiment. There appears to be broad consensus that home values across the country will likely continue to rise over the coming months.

The Supply and Demand for Housing

It is the supply and demand imbalance that’s the primary factor in influencing home prices. So it’s vitally important for home buyers to understand these market conditions.

Most real estate markets, including California and Arizona are experiencing a supply shortage. Inventory is falling short of demand, and that puts upward pressure on home values.

Economists and housing analysts say that a balanced real estate market has somewhere around 5 to 6 months worth of supply. In both California and Arizona today, that figure is in the 2.5 to 3 month range. Clearly, these markets are much tighter than normal, from an inventory standpoint. This is true for other parts of the nation as well, where inventory levels are in the 4-month range.

Interest Rates

There has been a slow increase in interest rates since September of 2017 – and a quicker jump in the last few months. Bond markets haven’t seen pressures like this in over 4 years – and things are trending higher.

Many investors believe inflation is bound to tick up if the labor market continues to improve, and some market indicators suggest inflation expectations have been climbing in recent months.

This is a general reflection better economic data, rising energy prices and the passage of sweeping tax cuts. Many think could provide a further boost to the economy – giving consumers more money at their disposal.

If positive labor and economic news keep pouring out (as most analysts believe things will continue to improve), then the prospect of inflation will put pressure on bonds and interest rates.

The Federal Reserve has suggested that they will have 3 to 4 interest rate increases in 2018, and most experts see a .5% to 1% overall increase in mortgage rates this year.

In Conclusion

So, let’s take a look at our original question: Does it make sense to buy a home in 2018, or is it better to wait until 2019?

Current trends suggest that home buyers who delay their purchases until later this year or next will most likely encounter higher housing costs. All of these trends and forecasts make a good case for buying a home sooner rather than later. Please reach out to me for more, as it would be my privilege to help!

January 29, 2018

Interest Rates in 2018 – Cause and Effect

There has been a slow increase in interest rates since September of 2017 – and a quicker jump in the last few weeks. Bond markets haven’t seen pressures like this in over 4 years – and things are trending higher.

Many potential home buyers and investors are asking why – and what does the future hold?

First, let’s take a look at what the 10 year treasury note has done since September 2017. The 10-year Treasury note rate is the yield or rate of return, you get for investing in this note. The yield is important because it is a true benchmark, which guides other interest rates, especially mortgage rates.

Note the upward slope of the yield on the graph below…and mortgage rates have essentially followed:

OK – so we see the trend line. So why has this happened?

Well, there are 3 main reasons – and all of them are pretty decent economic signs, as a matter of fact.

Increased Employment and Potential Inflationary Pressures

Many investors believe inflation is bound to tick up if the labor market continues to improve, and some market indicators suggest inflation expectations have been climbing in recent months. This is a general reflection better economic data, rising energy prices and the passage of sweeping tax cuts. Many think could provide a further boost to the economy – giving consumers more money at their disposal.

If positive labor and economic news keep pouring out (as most analysts believe things will continue to improve), then the prospect of inflation will put pressure on bonds and interest rates.

‘Quantitative Tightening’ by the Federal Reserve

Between 2009 and 2014, the US Federal Reserve created $3.5 trillion during three phases of what was called “Quantitative Easing”. It was the Federal Reserve’s response to help reduce the dramatic market swings created by the recession about 10 years ago. It used that money to buy $3.5 trillion dollars worth of financial assets – principally government bonds and mortgage backed securities issued by the government-sponsored mortgage entities Fannie Mae and Freddie Mac.

When you really think about it, $3.5 trillion is a pretty large amount of money. When that much money is spent over a six-year period, it would no doubt change the price of anything, bond markets included. By the way, this maneuver has generally been appreciated in the market and (at least at this time) appears to have been a success.

Well, the Federal Reserve has now begun to reduce its balance sheet as the necessity for investment has given way to the possibility of inflation. Over time, the plan is to reinvest less and less – as per the schedule reproduced in the table below – until such a time as it considers its balance sheet ‘normalized’.

Historically, when the bonds owned by the Fed mature, they simply reinvested the proceeds into new bonds. It essentially keeps the size of the balance sheet stable, while having very little impact on the market. However, when quantitative tightening began in October of 2017, the Fed started slowing down these reinvestments, allowing its balance sheet to gradually shrink.

Essentially, the Federal Reserve is changing the supply and demand curve and the result is a higher yield in the 10 year treasury note.

Stock Market Increases – Pressuring Bond Markets

Generally speaking, stock markets and bond markets move in different directions. Because both stocks and bonds compete for investment money at a fundamental level, most financial analysts believe that a strengthening equity (stock) market attracts funds away from bonds.

By all measures, 2017 was a stellar year for the stock market. As we enter a new year, experts are cautiously optimistic that stocks will continue their hot streak in 2018.

Stocks soared last year on excellent corporate profits and positive economic growth. The Dow Jones industrial average shot up by 25%, the S&P 500 grew by 19% and the Nasdaq index bested them both with a 28% gain.

There is clearly more evidence of excitement among investors in 2018. This has everything to do with a strengthening economy and record corporate revenues…and profits that that have been bolstered by the new tax law.

In the short run, rising equity values would tend to drive bond prices lower and bond yields higher than they otherwise might have been.

What It All Means

So, I think it is safe to say that we will continue to see pressures in the bond market and mortgage rates overall. These increases look to be gradual, but consistent.

With that said, home prices are increasing nationally at nearly 6%, so the increase in interest rate will be more than offset by the increasing value of one’s home! Now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

Tips on Interest Rates and Mortgage Shopping

December 26, 2017 / Tom Bonetto / 2 Comments

During the home buying process, one key component for borrower consideration is the mortgage interest rate. As many know, rates vary widely from lender to lender.

You might wonder if the lowest rate is the best way to go…but please know there are other factors to take into consideration besides an advertised rate.

With that in mind, here’s a list of tips to help give the buyer confidence as they enter down the path of home ownership or refinancing a current home loan. The single best thing a potential borrower should do is to reach out to a trustworthy mortgage lender!

Do Your Research as You Compare Lenders

Be wary of rates that seem too good to be true. If a rate is far lower than most others, there may be significant extra costs involved – remember, there’s no such thing as a free lunch!

Be skeptical of lenders that have little to no reputation. Check the web for testimonials, run some Google searches and find out mor about them and the firms they work with. Consider how many years the lender has been in business and any complaints or bad reviews online.

If your lender can’t provide you with a solid list of references and referrals, they might not be the right one for you!

Education is Key: Learn About Loans and Rates in Order to Compare Them

It’s important that buyers decide what their goals are regarding that home purchase and whether you need a fixed or adjustable interest rate. A fixed interest rate means that the rate stays the same throughout the life of the loan. An adjustable rate starts off lower and then increases gradually, usually annually, but not beyond a maximum amount.

Talk to trusted industry experts, then with family or friends about what types of home loans they have had and what their experiences were with each type of loan and lender to get a better idea of what might work well for your situation.

Look Beyond the Actual Percentage Rate

Learn about the Annual Percentage Rate (APR) and points. The APR is the cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees.

With that said, the APR isn’t necessarily the best benchmark to utilize – find out more about that here….there really are other factors that weigh into this equation.

It’s important to know whether points are included with the APR as it will affect your costs of the loan. A rate may be lower, but may include points, which you will pay for and should account for when comparing home loan interest rates.

Look into other fees that are included with the loan. These might include Lender Fees, Appraisal Fee, and Title Services Fee to name a few.

In Conclusion

Taking the extra step to educate yourself on interest rates and your potential lender will really help you gain a better understanding of the process and options available.

I would be happy to give you the tools and information you need to make wise choices during your home buying journey. Got questions? Don’t hesitate to reach out to me, as I’d be happy to answer any questions as you might have!

Coaching and teaching - many through the mortgage process and others on the field

Category: Interest Rates (page 1 of 4)

FHA Or Conventional – Which is Superior?

A Second Thought

FHA vs Conventional Infographic

Purchasing Today – Why Now?

First: The Good News – and There’s Lots of It

Rates Today – and What We Can Expect

The Bond Market and Interest Rates

What About Another Bubble?

In Conclusion

What the research found on interest rates and purchasing patterns

How to read the data

What buyers can do now

‘Quantitative Tightening’

Inflation and Interest Rates

What It All Means

Are home prices really that high?

Home buyers still hold the power

The real story on home prices

The Current Outlook

The Data

Rising Rents Means It’s Time To Buy

It Pays to Own Your Home

What This Means For Today’s Buyers

Why Now?

The Refinance Market

That House Will Probably Cost More The Longer You Wait

Houses Are INCREASING in Value and Are Getting More Expensive

The Supply and Demand for Housing

Interest Rates

In Conclusion

Interest Rates in 2018 – Cause and Effect

Increased Employment and Potential Inflationary Pressures

‘Quantitative Tightening’ by the Federal Reserve

Stock Market Increases – Pressuring Bond Markets

What It All Means

Do Your Research as You Compare Lenders

Education is Key: Learn About Loans and Rates in Order to Compare Them

Look Beyond the Actual Percentage Rate

In Conclusion

Apply Now

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