30 Jul, 2021
When I started originating mortgages, interest rates were at 11%! Back then, FHA only did rates at .5% increments so when they finally dropped to 9.5% the world went crazy as they were so happy that rates had dropped below 10%. Most of us choose not to remember those days and history has shown that this period in time was a fluke. In fact, if you look a historical rate chart (going back to 1790) you could see that the “normal” interest rate would be around 7.5%. Most of us want to forget the late 80’s and early 90’s (some of you were not around even) and one would argue that could never happen again. Why would I say it could never happen again? We now have a global economy; 24 hour news and 24 hour trading so the likelihood of those super high rates would be devastating to the world economy and most likely would not happen again. (lets keep our fingers crossed that this thought is accurate and good for us) But we are seeing a rise in rates from the low to mid 3%s. The difficulties with the low 3’s was that, that too was a fluke. The US credit rating was in jeopardy due to mortgage defaults and foreclosures. Our bond market was falling apart and our economy could not handle that. The Federal Reserve started buying mortgage backed securities (something it has never done before) and that sent the rates artificially low. This helped people keep their homes (which means the values do NOT drop and actually increased) while preserving our credit rating. Now the Fed has stopped buying these securities and is letting the market get back to normal. The impact of the low rates has helped create the housing shortage we are experiencing. Many people bought or refinanced their home into the low rates. As rates start to get back to normal market prices, it is making people rethink the idea of moving just to move into a different home. Less people selling, less inventory. We always have first time home buyers, couples that are starting a family, getting married, job promotions and they want to purchase their first home or a move up home, but with less people selling, the house prices go up. Interest rates are going up due to a number of things. 1) We have an improving economy. When the economy grows, stocks go up and the big investors put their money into the stock market. The bond market is competing with the stock market so interest rates have to increase to attract investors. ( I am talking about 401k funds, Insurance companies, foreign countries etc. not the investments you and I make) This is “normal” market conditions and will cause the rates to tick up. 2) Inflation. When the economy grows, so does inflation. As inflation goes up, interest rates go up. 3) The Fed is intentionally shrinking its balance sheet with bond holdings and selling them off. (they had never purchased them before and now have to get rid of them) This is putting upward pressure on the interest rates. 4) The Fed has been raising interest rates. They began in 2015 and the general consensus is the Fed will raise rates 4 times in 2018 as opposed to 3 times as originally anticipated. Bottom line is this. If you are looking for a home, try to get your head around the fact that rates are ticking upward, but that is okay. The average mortgage is 7 years. I am not saying people move every 7 years; I am saying the average length of a mortgage. People refinance, or sell and buy a new home. You are NOT making a 30 year decision on the mortgage. If you work with the Scott Miller Team, you will be in contact with us on a regular basis and we will run the numbers so you can make a good decision on moving, refinancing, etc. If you are looking to buy a home, YES its a great time to buy. If the rates get better, we will simply refinance it or it will be time to move up. Since the interest rates cannot be controlled by us as consumers, don’t make that your factor. Buy the home that meets your financial requirements for today, in the future when you are ready for a move, you will be well situated financially for success. As always if you have any questions please call The Scott Miller Team at Nations Lending at 612-751-7268.