Kiss those 3.3% mortgage rates goodbye
As 30-year fixed home loans near 4%, the chances of going back to historic lows are fading quickly.
This week, the average rate on that mortgage jumped 10 basis points to 3.91%, according to mortgage company Freddie Mac. That's a level unseen since April 2012. And judging by the reactions of economists, it's a rate that's going to be a steal compared with what homebuyers will see in the near future.
Why? At least partly because some people don't learn. When house flipping became a trend again, even though the practice helped torpedo the housing market and bring on a recession, it was only a matter of time until someone questioned why rates were still so low.
The Federal Reserve, which is spending upwards of $85 billion a month buying Treasury bills and mortgage-backed securities to keep rates down, is now considering halting that practice as soon as September, according to CNNMoney. That would mean private investors would have to make those purchases, which in turn means higher rates to attract those investors.
Also, though consumers and job hunters may not feel the economy is so steady right now, lenders feel that it has been quite a while since the recession ended and that recent improvements justify a rate increase. With the nation adding jobs by an average of 202,000 a month and both home sales and prices rising, even lukewarm news can push 30-year mortgage rates closer to 5.23%, which CNNMoney notes was a 37-year low when it first appeared in 2003. Historically, that rate averages about 5.5% or higher.
Investment property buyers and house flippers -- now accounting for more than 20% of the overall housing market -- aren't the only ones using current low rates to their advantage. Those rates are also making it a lot easier for new homebuyers to get more for their money and for sellers to get prices that keep them above water.
But with factors like bloated student loan debt already keeping potential first-time buyers out of the market, jacking up rates won't exactly add incentive. And with housing inventories hovering around a 4.5-month supply -- versus a more typical six-month stockpile -- and homes that took 100 days to sell a year ago leaving the market in little more than 60 days now, the foundation for reduced mortgage rates is buckling.
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Yes and KISS those houses GoodBYE! Banks can have all those empty rotting houses that no one can afford to live in! Friend of mine makes 60k a year and has excellent credit (780) and can not get a mortgage beyond 130K. You can't buy anything decent in NJ for 130K unless you want a condo with $375 dollar condo fees! The house market is heading for another bust! HOW DO I KNOW?
Just as I knew the first BURST was coming. The prices are too high! Who the hell can afford a 200K mortgage? Answer: young people...and they are either unemployed or trying to pay 100K student loans?
Housing prices need to adjust...WAY DOWN! wages are stagnent and unemployment is still HIGH.
Honest ...What has really changed in 3 years....answer: NOTHING!!!!
Oh spare me the histrionics. My husband and I bought our first house in 1981 and we took out an adjustable rate mortgage at the great rate of 13.5%. A fixed rate mortgage ran about 18% at the time.
Our second house was at 11%. The third at 8.5%. We managed just fine and will retire with a nice portfolio. You just have to want it bad enough.
I agree with your position. In addition to these factors is the reality that for the last four years the big banks have been making more money off of credit cards, assorted bank fees and penalties than they have from the interest on their outstanding loan portfolios. In an effort to obtain more balance to their profit base they will have to raise interest rates on loans with some intensity...and sooner than later. Thanks for your post.
Those low interest rates will depress the new home market for years to come. Who will give up that low interest rate and build a new house when the rates go up? Only first time buyer who normally buy bottom of the line homes and people who move will be in the market, oh and those bastardly rich people.
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The start of a new year is a great time to reconsider key financial objectives.