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Feature Article: Rising rates a mixed bag for buyers
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It’s no secret that mortgage interest rates this year have risen. And they will continue to do so, according to all the telltale signs. That’s a scary proposition for some, as it will make monthly payments more expensive. But rising interest rates aren’t likely going to mean strictly bad news to come for the housing industry.
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Rising Rates a Mixed Bag for Buyers
This was the year when mortgage interest rates were finally going to rise. The Federal Reserve Bank, after years of keeping the federal funds rate – what banks pay to borrow the money they lend – at zero, it was going up this year.
As you might know, this didn’t happen in April, which is when it was thought to first be a possibility. Instead, April was when we heard it would happen in June at the earliest. But before June even arrived, we were told “Nope, not at least until September.”
That’s less than a month away now, and who knows what’s going to happen? Each time there was rumor of the Fed moving up the rate at this meeting or that, the weeks of anticipation of the bump are what moved the needle on rates. But with September looming, the average rate on a 30-year, fixed-rate mortgage actually just dropped for the third straight week. That average is again below 4 percent, which is still ridiculously low from an historical perspective.
This is largely because of some recent economic news – wage growth, unemployment – that pushed treasury bond demand up and yields down, which pushes mortgage rates down. This sort of market-fundamentals influence could make the Fed rethink the timing of its inevitable decision to raise rates.
But it doesn’t change the inevitability itself. Rates will rise.
If you’re looking to buy or sell a home, that could be distressing news.
As a buyer, you want affordability. Having a lower rate means a lower monthly payment. It also means being able to qualify for more house in terms of the strict debt-to-income ratios now in place.
As a seller, you want more buyers who can afford your home. Lower interest rates mean better-qualified buyers and more of them, both of which work to a seller’s advantage.
But a rise in interest rates isn’t all bad news. It’s kind of mixed news.
For example, less-affordable housing is worrisome in markets where affordability is already an issue, or where buyer demand is already high. But think of it this way: If that average rate of 3.91 percent rises up to that 4-percent threshold, we’re talking about a $4 monthly increase in payment for every $100,000 borrowed. If it goes all the way to 4.25 percent, the difference is about $15 per month.
Those are figures that aren’t very likely to stop most people from landing the home they want. And that $15 per month is based on a rate of 4.25 percent. Even with some anticipation-driven rises this year, we haven’t been above 4.12 since October of last year.
And the slight rise in costs might have actual benefits that come with it. Banks have started softening their stances on qualifying standards, and you can bet that a lot of that has to do with the anticipation of that Federal funds rate bump. When they can start charging more to lend money, banks are going to start lending more money.
Heck, Chase this week announced that it’s lowering its qualifying standards on “jumbo” loans, those above $417,000 in most markets. A couple of weeks ago, you needed a credit score of 740 and 20 percent down to qualify. Now, the bank says, you need a score of 680 and 15 percent down. In a CNNMoney.com article, the no-duh statement of the year appeared regarding Chase:
“By easing its standards, the bank is hoping to gain more customers.”
That’s because the bank is hoping to charge more to borrow money once the Fed makes its move. Banks don’t suddenly become charitable overnight – there is always one reason behind moves like the one above, and that one reason is bigger profits.
That, of course, is for jumbo loans right now. One reason for that is because they are statistically less of a risk than conventional loans in the current economic climate. But as rates rise and banks can make more money off of more borrowers, you can be certain that standards will ease for more borrowers.
Rates will eventually rise (the guess here is NOT in September, as believed). But some good news will come with the not-so-good.
How Reliable Is that Real Estate Website?
Searching for a home, or information about the real estate industry in general, has never been as easy as it is right now. The internet has become a go-to source for things real estate-related. But with all kinds of websites out there, from the monsters like Zillow to your neighborhood listings, how do you know where to get the most reliable information? This pretty thorough Washington Post piece explains.
Looking to Buy? Things to Consider
As you might know, I’m not one of those who believes homeownership is a one-size-fits-all thing. Some people are perfect candidates for owning a home, and others should probably be lifelong renters. If you are considering the rent vs. buy question, this Bankrate.com article and simple-yet-elegant info-graphic give you some things to think about.
6 Offbeat Degrees for Entrepreneurs
If you have an MBA, most people might think you have the right educational background for entrepreneurialism. Maybe, maybe not. And, unfortunately, you can’t major in entrepreneurialism itself at many universities. But this pretty interesting Entrepreneur.com article looks at some other decent degrees for entrepreneurial types that you might not immediately think of.
Back to School Sale
Apparently, school is much more fun now compared to my school days.
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