Were you one of those buyers who remained on the fence for the last few years waiting for the bottom of the real estate market to hit? Did you think that interest rates had no chance of going up anytime soon? Well, I am sorry to be the one to let you know but you missed the first boat out of port. Just make sure you don’t miss the rest of the fleet!
So what happened in the past few weeks/months? Basically, supply, demand and our wonderful financial system. We came into this year with a huge inventory of unsold homes. This spring, we had almost a 10% rise in sale prices as that inventory started to dwindle.
So as the supply of buyers gaining consumer confidence decided that it was a good time to buy, houses started selling faster and faster with multiple offers as the buyers came in droves. However, the inventory could not keep up. So as supply outweighed the inventory, demand skyrocketed.
Over the last 3 weeks, we have seen the financial markets get stronger and stronger, again fueled by the better housing market. So what happens? Interest rates start to tick up. 3 weeks ago, the average interest rate was 3.61% for a 30 year mortgage. Unfortunately, the Fed and Mr Ben Bernake also saw this strong financial market and though it would be a good idea to speak.
You see, The Fed has this little trick they are pulling called Quantitative Easing and the excessive buying of mortgage backed securities at an incredible amount in order to keep interest rates low. The monetary system in itself saw a flight from bonds (safe easy returns on investments) to stocks (lets make a windfall peeps) as the market gained strength. This of course, has an effect on the bond market as people sell off their stash. Aka, interest rates rise. Look at this chart below to see the power of the Fed Chairman on the mortgage backed securities market – scary!
As you can see, the bond markets took a nosedive, sending mortgage interest rates into a tailspin. What did this man say to cause such a drop? Bernanke told the world that the Fed believes the economic outlook is improving and based on the Fed’s forecasts of continued slow improvement (if it continues) the Fed will begin tapering its easing by the end of this year and by mid-2014 all the easing’s will be ended. In summary, if things keep getting better, which we all hope they do, you are on your own folks.
The problem with this? In my opinion, the economic data is falsely showing a “strong” economy. Yes, unemployment is down. But how many people are still not working, just not collecting unemployment? Or how many of them started their own business out of necessity? I know there has been a surge of new real estate agents throwing their hat in the ring based upon all of the inexperienced people I have had to deal with as of late! So for those with a job, they are actually starting to spend some money. Great! Its summertime, people do that! Foreclosures are decreasing. Well maybe because it is taking almost 580 days on average to foreclose on a home in PA.
The bottom line: rates have climbed from the low to mid 3% range to over 4% on most loan products. They may actually head towards the 5% range shortly. So yes, if you were pre-approved at 3.25%, you may not be able to afford that home you saw 2 weeks ago. But that does not mean you cannot buy!
Look people, we have been spoiled! I know many people who have bought a home at 18% interest rates. My mortgage when I bought in 2000 was 9.625% on an adjustable!! As interest rates increase, so do savings accounts and other investments. If you can hedge the market by borrowing a boat load of money at 5% for 30 years, simple interest that is tax deductible, you should have no trouble finding an investment to make 7% compounding on your investments, let alone the 10-20% return on your home that you invested in. So shut up, quit whining, & buy a house before you no longer can!!