Nov. 9, 2018.
Mortgage rates are going up, and homebuyer confidence is going down — at least, according to Fannie Mae. But here’s where things can get interesting. A slight increase in mortgage rates means fewer buyers bidding on houses. Sticking out the competition and buying at the current mortgage rates could get you more house for your budget.
The upside of rising rates and a ‘boring’ housing market
Never one to mince words, Lawrence Yun, National Association of Realtors (NAR) Chief Economist, predicted the housing market would be “very boring” in 2019. What Yun has called boring others have called “friendly.” That’s because a slowdown in home sales can keep housing prices from spiking, making a new house more affordable for buyers.
Is it better to rent or buy? Compare the costs and crunch the numbers.
But what about those rising rates that can make buying a house more expensive? Mortgage rates just hit a seven-year high, confirmed Freddie Mac. Higher mortgage rates are another factor that slows down housing price growth and cuts down on the number of buyers.
Fewer buyers and lower housing prices leave many more options for the homebuyers who hang in there. It can be a smart move to continue shopping as the housing market cools and buy before the next rate increase.
Still, the latest Fannie Mae Home Purchase Sentiment Index® (HPSI) shows that homebuyers’ confidence is taking a hit, reaching its lowest point since the previous year. That might be because of how easy it is to miss the forest for the trees. Meaning, it’s easy to read about rising rates and think it’s time to take a break from house-hunting. But the buyers who keep shopping, even as rates increase, may see a boost in their buying power as housing prices level out. More buying power increases the chance of getting into a bigger or more desirable place.
How to get more house at a higher rate
A higher mortgage rate normally comes with a higher monthly payment. But even with recent increases, it’s important to keep things in perspective. A few decades ago, mortgage rates were higher than 12 percent, and now, they’re nudging close to 5. Moderate mortgage rate increases affect your monthly payment, but buying sooner can minimize the impact.
There are also several ways to make rising rates work to your advantage:
- Lock your rate. Today’s rates are probably going to rise again soon. Luckily, you can lock them in and put your mind at ease. Locking in a lower rate could save you about $1,200 a year on your mortgage. Look for a lender that offers a long-term rate lock — either for new construction or for transitioning from one place to the next. Rate lock options can extend for up to 270 days, with the helpful cushion of “floating down” to a lower rate if mortgage rates decrease within 45 days of closing. Some upfront fees based on rate lock term will apply.
- Pay in “cash.” Cash sales are on the decline, sliding down to 21 percent in 2017. If you don’t have a large lump sum available to buy a house outright, consider the next best thing. Use a specialty loan program that offers full loan approval so you can make an offer as good as cash. “Like cash” loan programs like Early Bird Approval can help grab a seller’s attention and increase your chances of beating out other buyers in areas where housing demand is still high.
- Think about buying sooner. Small mortgage rate increases may not change your monthly bill much, but rate rises can add up over time. Waiting to buy at the 5.3 percent projected mortgage rate for 2019 could cost you $205 or more a month.* If you’re waiting to buy a house to save for a down payment or to cover closing, talk to your loan officer first. It’s easy to forget that plenty of low- and no-down-payment mortgage programs are out there, not to mention Down Payment Assistance. Many of these programs have lower monthly payments than what you might pay in rent, and one of these loans could cut or eliminate your down payment completely. With less upfront cash needed, it may be easier to buy a house sooner rather than later and save on your monthly payment.
The lower the rate, the more your buying power. So, buying at today’s rate could help you maintain your price range before the next increase. Start by finding out how much you can afford in the newly friendly market. Many buyers are getting more than they expected.
*Based on MBA Forecast – January 2018 & Houseloan.com Mortgage Loan Calculator. Estimated payments/costs rounded to the nearest dollar.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.