– By Bill Forrest, REALTOR
I do not have a crystal ball that definitively says what a mortgage rate is going to
do, but we have a lot of information that shows the most likely outcome. The biggest factor is the Federal Reserve and their monetary policy.
Taking the temperature of the economy
The Fed uses policy to keep our economy moving but not overheating. They are most happy when we have GDP growth at 2% which is their defined target. Currently, our Atlanta Region GDP is at 4% and climbing which is the sign of an amazing and robust economy. This is very concerning to the Fed as they see it as overheating and that is when inflation becomes a real issue. The policy has been to keep Fed-controlled interest rates artificially low to help our economy recover. The great news is that the economy has recovered. Due to this, the Fed has announced that they will be raising their primary interest rate 4 times in the coming months of 2018. This is an over-simplification but the basis for the rest of the article.
The recent changes to our national tax code combined with the Fed’s decision to raise rates had a huge impact on the bond market the last couple of weeks. This affected Mortgage Interest Rates dramatically last week with some jumping as much a half a point.
INTEREST RATES are going to go up.
Here is what the major players are saying: This graph was from mid-January. This was long before the recent Bond Market volatility that led to the spike in Mortgage Interest rates last week. So the starting point is more like 4.5, not 4.1. This grid could be too conservative. As of this morning, the 30-year fixed rate conventional mortgage jumped to 4.5% in most cases from 4.125. Freddie Mac expects rates to hit 4.9 but that was before last weeks spike so we very likely may see a 5.25% interest rate by December. Now is not the time to wait to buy you will see below. Half a point in interest rates could have serious consequences in purchase power.
Waiting a year to buy could cost you as much as 10% and more in purchasing power.
So to keep the same or similar payment you will only be able to buy a house or condo that is 10% less in price just from the projected change in interest rates. This is a double whammy as that homes in the Atlanta region are appreciating at better than 5% so that 200,000 home would then cost 210,000 a year later for the same home. When you combine the appreciation with a higher interest rate waiting a year OUCH…
The good news is that you will still be able to afford a whole lot more home than your parents could at the same age. Ask them about the 70s and 80s and interest rates as high as 21% But time is not on your side.
To see what you can afford today reach out to one of our incredible lenders:
Jason Randall at BankSouth 404-433-8977 or Click to Apply Here
Brent Blythe at Wells Fargo Private Mortgage 404-238-0368 or Click to Apply Here