Put Rising Rates Into Perspective for Buyers
DAILY REAL ESTATE NEWS | WEDNESDAY, NOVEMBER 23, 2016
Rising mortgage rates have sparked concerns that they could stall some home buyers who were already under financial constraints.
The 30-year fixed-rate mortgage averaged its highest level in more than a year last Friday. Rates rose from 3.5 percent to 4.125 percent in less than a week, CNBC reports.
“It’s kind of sad, because you’re helping out a first-time buyer who is in need of these low rates and doesn’t have the personal liquidity to offset if the rates rise,” one lender in New York told CNBC. He says that he has two clients are struggling with the higher rates. “One is on the bubble, but one is almost a dead deal.”
Still, it’s important to keep perspective: Mortgage rates remain historically low.
The higher rates may hamper some buyers, not just because of a $50 difference in mortgage payments but because they may have a more difficult time qualifying due to lending’s strict debt-to-income ratios.
“I tell people, interest rates are 80 percent psychological and 20 percent math,” loan officer Jason Anker, vice president at Salem Five Bank in Waltham, Mass., told CNBC. “I do the math for them and their next reaction is, ‘Oh that’s all?’ Forty dollars a month, $75 a month. They initially think it’s going to be a lot more painful than that. … My advice to clients right now is to be extremely defensive.”
Buyers cannot lock in a mortgage rate until they have a signed contract on the sale of a home. But they should realize: There is plenty of indication that mortgage rates will edge higher in the coming weeks. The Federal Reserve is expected to raise its lending rate in December. While mortgage rates don’t follow that rate precisely, rates could move higher as investors sell out of the 10-year Treasury bond market and head into the stock market.
“In the short term, some prospective buyers may rush to lock in their rate and buy now, while others — especially those in higher-priced markets — may be forced to delay as a larger monthly payment outstretches their budget,” says Lawrence Yun, chief economist for the National Association of REALTORS®.
Source: “Higher Mortgage Rates Scuttle Some Sales,” CNBC (Nov. 21, 2016)