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Will Mortgage Interest Rates Really Rise In 2022? |
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Will mortgage interest rates really rise in 2022? Yes, he said, knowing he has said "yes" for years and has been wrong over and over. ;-) To be fair, I guess interest rates did rise between 2012 and 2014 and again between 2016 and 2018. But, they've been below 5% for over a decade now -- and have been below 4% for eight of the past ten years. So, again, will interest rates really rise in 2022? After steadily declining since 2018, yes, it seems likely that interest rates will start rising again in 2022. But, it seems quite likely that I could be wrong, again. :-) | |
Mortgage Interest Rates Are Definitely Headed Up, For Sure, Oh Wait!? |
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I can't even count how many times over the past five-ish years that I have said mortgage interest rates would certainly be rising again, soon, for sure. I have certainly been thinking that over the past few months, but... maybe they're not!? Consider these data points for the average 30 year fixed mortgage rate... One Year Ago = 2.84% April 2021 = 3.18% (a peak) August 2021 = 2.77% (a valley) October 28 = 3.14% (apparently, a peak) Today = 2.98% This is all show in the graph above, as well. After interest rates rather steadily rose between August and October, it seemed almost certain that they would continue to rise, staying above 3% for perhaps the indefinite future. But, then, for the past two weeks, mortgage interest rates have declined, now landing below 3%, again. So, yeah, mortgage interest rates are definitely going to go up now, soon, for sure. Just like I have been saying, inaccurately, for years now... | |
If You Are Buying A Home Soon, Consider Starting Your Loan Application Now |
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Here are the three sequences I see buyers follow most frequently....
As Late As Possible
Incredibly Proactive
A Reasonable Middle Ground
I try to encourage all of my clients to at least be in the "reasonable middle ground" sequence as outlined above. This gives them a firm idea of what they can afford and how a home price will compare to a loan payment. This also allows them to make a stronger offer, already having a pre-qualification letter in hand. I strongly discourage my clients from following the "as late as possible" sequence as outlined above. This doesn't help them make the best decisions about which houses to pursue, how far to negotiate, etc. This also doesn't allow us to make as strong of an offer on a house. Occasionally, one of my clients will fall into the "incredible proactive" sequence as outlined above, and wow, this makes the financing process a joy to work through! These buyers have already done so much of their work with the lender before even thinking about which house to buy -- which then allows them to focus on buying, negotiating, inspecting, etc., rather than be bogged down in the process of securing their mortgage. Let me know if you have questions about how I have described these sequences -- and let me know if you would like a few recommendations for lenders in the Harrisonburg area. | |
Buying A Home Before Selling Your Current Home |
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If you plan to buy a home this fall -- but you already own a home, that you plan to sell -- then one of your first conversations should likely be with your favorite mortgage lender. It's a seller's market, after all, which means that... [1] When you are selling your home, you will likely find yourself able to negotiate favorable terms with most buyers making an offer on your home. ...but... [2] When you are making an offer to buy a home, the seller will likely have the upper hand in negotiations. As such, if you are planning to make an offer to buy a house with any of these scenarios, you are unlikely to be successful...
So, if you want to have a fighting chance at buying a home right now, you will likely want to explore what it would look like to buy before (or independent of) selling your home. Basically, will your lender allow you to buy a new home before selling your current home. If your lender says this is possible -- and if you are comfortable with it -- this will allow you to pursue houses that come on the market and make offers that are not contingent on the sale of your home. But again, all of this starts with a conversation with your lender. So, if you want to buy this fall, but will also need to sell, and you're not sure if you can buy before selling -- talk to a mortgage lender ASAP to find out! If you need recommendations on some great mortgage lenders in this area, feel free to email me. | |
Is A Cash Offer Really That Much Better Than One With Financing? |
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Many sellers, when receiving a cash offer and one with financing, ask themselves (or their agent) whether a cash offer is really that much better than one with financing. As with many questions in real estate, it depends... First, a $400K cash offer and a $400K offer with financing will both (any other contingencies aside) result in the same amount money going to the seller -- $400K less mortgage payoffs and transaction costs. So, in that way, a cash offer and an offer with financing are pretty similar -- the seller gets the same amount of money. These two offers, though, start to feel pretty different...
In this case (above) the second buyer is likely is not very financially capable and that could mean there would be difficulties in the buyer obtaining financing to complete the home purchase. The fact that the lender is an unknown variable can also give a seller pause as they compare the two offers. These two offers, though, may very well seem pretty similar to a seller...
In this case (above) the second buyer would seem to be very financially capable, in that are putting a sizable deposit down and have a significant amount of funds to use as a down payment. The fact that the lender is a known variable (local, reliable) means that the offer is very likely to proceed quickly and smoothly to closing. So, in the end -- should a seller look at a cash offer as being undoubtedly better than any offer with financing? Not necessarily. An offer that is similar in offer price, with 80% financing, a sizable deposit, and where a buyer is working with a known local lender is just about as strong as a cash offer in almost all circumstances. | |
Home Prices Are Rising Quickly But Buyers Seem To Be Well Qualified To Buy What They Are Buying |
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I started working in real estate way 18 years ago, way back in 2003. Between 2003 and 2006 home sales and prices shot up quickly -- and then sales slowed dramatically and prices declined slowly. Does it feel somewhat similar now? We're seeing significant increases in the number of homes that are selling -- and significant increases in our area's median sales price. But -- at least one thing is definitely different right now compared to that 2003-2006 timeframe... Today's home buyers seem to be very well qualified to buy. Back in the early 2000's when sales and prices were careening upward, some/many buyers were only marginally financially qualified to buy the homes they were buying...
These days, things are quite different...
So, yes, the market is heating up like it did in 2003-2006, but this go round, home buyers seem to be very well qualified to buy what they are buying. That would seem to be good news for the future stability of our local housing market. | |
I Do Not Think The Housing Market Would Collapse If Mortgage Interest Rates Rose A Bit |
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Mortgage interest rates have been very low for quite a while now. The average 30 year fixed rate fell below 4% just over two years ago -- on May 30, 2019 and has never looked back. Furthermore, this average rate has been below 3% for 36 of the past 41 weeks. So, yes, mortgage interest rates are low. Super low. Eventually, they will start to rise -- maybe above 3%, maybe to stay above 3%, maybe above 3.5%, maybe even up to 4%! When mortgage interest rates start to rise, will the housing market collapse? Will prices fall? I am thinking not -- so long as interest rates move slowly and steadily and not quickly and erratically. Right now many houses are seeing 5+ (or 10+) offers within just a few days of being on the market. Not all houses, in all price ranges, in all locations -- but many houses! What will happen if interest rates start to rise? Perhaps if they rise far enough, some of those buyers will no longer be qualified to buy -- or will no longer comfortable buying based on their mortgage payment. But what will that actually mean? Maybe instead of 5 - 10 offers on a house there will be 4 - 8? Or 3 - 7? Demand exceeds supply by sooooo much right now that if mortgage interest rates rise a bit, unwinding some of that demand -- it will almost certainly still be a very strong seller's market -- just not a very, very, very strong seller's market. So, if you start to see mortgage interest rates rising, yes it is possible that it will eventually have an overall impact on our local housing market -- but I don't think it is likely to change the overall market fundamentals. | |
Monthly Housing Costs Remain Level Despite Rising Prices |
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The median sales price in Harrisonburg and Rockingham County has increased 17% since 2018 -- rising from $211,750 up to $248,700. Yet, despite buyers paying higher sales prices for homes -- the monthly mortgage payment associated with that rising purchase price has barely risen at all. If a buyer financed 80% of $211,750 back in 2018 they would have had a mortgage payment of around $1,056. If a buyer finances 80% of $247,700 today, they are likely to have a mortgage payment of around $1,061. This has, of course, been possible because mortgage interest rates have generally declined over the past few years while home sales prices were rising. So, the good news is that even if you are paying a higher price for a house today then you would have over the past few years you likely will not see a corresponding comparative increase in the monthly housing cost associated with that higher purchase price.
This won’t necessarily last forever as interest rates will at some point start to drift upwards… or even if interest rates stay where they are now, if prices continue to climb over the next few years the corresponding monthly housing costs will start to increase as well. So everybody should just buy a house now, right? Easier said than done - as a result of a tremendous amount of competition in the market. Perhaps these steady monthly housing costs due to lower mortgage interest rates are what have drastically increased the amount of buyer demand in the market? | |
30 Year Mortgage Interest Rates Drop Below Three Percent Again |
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Mortgage interest rates started out at 2.65% this January and kept on rising -- all the way up to 3.18% on April 1st. But, then, they started declining again. Interest rates are now averaging at 2.97% for a 30 year fixed rate mortgage. That is well below where we were...
Today's home buyers are certainly happy to be seeing interest rates declining again, as it helps to offset the rapidly increasing prices that they find themselves paying for houses in this quickly moving and highly competitive market. | |
Will Buying A Home This Year Or Next Year Result In The Lowest Mortgage Payment? |
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If you are hoping to minimize the amount of your monthly mortgage payment, should you buy a house this year? Or next year? Well, as shown above, it depends on whether you think home prices will be higher or lower (or the same) next year -- and whether you think mortgage interest rates will be higher or lower (or the same) next year. Most folks think mortgage interest rates will be higher next year than they are now. If so, it's most likely that you'd be better off buying this year rather than next to have a lower monthly payment. Even if rates continue to be this low, if prices continue to rise (as they seem likely to do) then again, you'll be better off buying this year than next. Since it seems relatively unlikely (highly unlikely?) that interest rates will go down over the next year, the only way you'd have a lower mortgage payment next year than you would now is if mortgage interest rates do NOT rise AND homes prices decline. So -- as to whether you should buy this year or next -- you tell me, based on your best guesses as to what interest rates and home prices will do over the next year. My best guess is that you'll pay more in a monthly payment for a house if you buy next year than you would if you buy this year. Now, all that said, we'll have to somehow secure you a home amidst a competitive market with lots of buyers -- but it's possible! | |
Are Home Prices Only Going Up Because Mortgage Interest Rates Are Going Down? |
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Disclaimer: I am not an economist. I don't play an economist on TV. Or on this blog. Feedback from actual economists, or accountants, or financial analysts, or wise guys is welcome: scott@hhtdy.com So, are home prices going up because mortgage interest rates are going down? Maybe yes AND no? Yes...
No...
So What...
Why...
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It Is Hard For Home Buyers To Compete If They Have A Small Downpayment Or If They Need Closing Cost Assistance |
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A few short years ago...
These days...
A few short years ago...
These days...
So, it's not that you can't buy a home with a small down payment or if you need a closing cost credit -- but it will be a lot harder to do so these days, largely because of other competing buyers who have a larger down payment and/or who do not need a closing cost credit. | |
Median Sales Price Increases $23,000. Monthly Payment Increases $3. Wait! What?? |
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Yes, you read that correctly. Over the past year...
Oh, the magic and mystery of declining mortgage interest rates! :-) Over the past year we have seen a rather rapid increase in home prices. The median sales price in Harrisonburg and Rockingham County one year ago was $217,000. Today, it is $240,000. This is an 11% increase in the median sales price over the course of 12 months which is a much faster than normal increase. And yet, if a buyer finances 80% of the purchase price, their mortgage payment will only be $3 per month higher than it would have been a year ago. Wait! What?? That's all thanks to ridiculously low mortgage interest rates! One year ago the average mortgage interest rate was 3.78%. Today's average mortgage interest rate is 2.81% -- which is 26% lower than the rate from a year ago. So, if you're surprised that a buyer today is willing and able to pay 11% more for a house than they were a year ago -- don't be! Most buyers are financing their home purchases, and thanks to today's low mortgage interest rates, they are still paying basically the same amount as a monthly payment now as they would have been a year ago. Put slightly differently... A year ago, Fred was working in a job that paid him $X per year, which allowed him to afford a mortgage payment of around $1,000 per month, which allowed him to purchase a median priced home of $217,000. Today, Fred's cousin, Ted, is working in a job that pays him $X per year (the same amount as Fred), which allows him to afford a mortgage payment of around $1,000 per month, which allows him to purchase a median priced home of $240,000. Pretty wild. Now, if (when!) those mortgage interest rates start rising -- then the cost of housing will start to increase -- though that's what we generally expect it to do. | |
Mortgage Interest Rates Will Never Be This Low Again, I Said Countless Times In Recent Years |
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I've been in this business for 17 years now. When I started, mortgage interest rates were right around 6%, which was amazing, given that they had been up above 8% just three years prior. But then, after major housing market adjustments in 2007 and 2008, mortgage interest rates started dropping. They kept on going down until they were just below 4% in 2012. This was, again, amazing! We then actually saw some ups and downs between 2012 and 2018 -- though rates generally stayed between 3.5% and 4.5%. And where do we find ourselves now? Below 3%! Again, amazing! Current average interest rates are 2.78% -- and I have had clients buy homes this year with fixed rate mortgages as low as 2.5%. If you happen to be buying a home (or investment property) right now you are going to greatly enjoy the low rates that you will be able to lock in for years to come! | |
How Early Should You Make Loan Application? |
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Here are the three sequences I see buyers follow most frequently....
As Late As Possible
Incredibly Proactive
A Reasonable Middle Ground
I try to encourage all of my clients to at least be in the "reasonable middle ground" sequence as outlined above. This gives them a firm idea of what they can afford and how a home price will compare to a loan payment. This also allows them to make a stronger offer, already having a pre-qualification letter in hand. I strongly discourage my clients from following the "as late as possible" sequence as outlined above. This doesn't help them make the best decisions about which houses to pursue, how far to negotiate, etc. This also doesn't allow us to make as strong of an offer on a house. Occasionally, one of my clients will fall into the "incredible proactive" sequence as outlined above, and wow, this makes the financing process a joy to work through! These buyers have already done so much of their work with the lender before even thinking about which house to buy -- which then allows them to focus on buying, negotiating, inspecting, etc., rather than be bogged down in the process of securing their mortgage. Let me know if you have questions about how I have described these sequences -- and let me know if you would like a few recommendations for lenders in the Harrisonburg area. | |
If You Have Not Heard, Mortgage Interest Rates Are SUPER Low Right Now |
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If you had asked me a year ago whether we'd see interest rates get as low as 3% - or lower than 3% - I would have said "no, definitely not, they couldn't get that low!" But, it seems I would have been wrong. The average mortgage interest rate (for a 30 year fixed rate mortgage) has continued to decline over the past four months from around 3.5% all the way down to the current rate of 2.88%. It seems likely that interest rates will continue to stay rather low in the coming weeks and months -- though I don't know if they will / can really stay below 3%. If you happen to be buying a home right now, PLEASE lock in your interest rate this week!! :-) | |
How To Run The Numbers On Upgrading To A New Home |
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If you will be selling your home to buy another, there are a lot of numbers floating around....
Above you will see a spreadsheet I put together to help you think about some of these numbers as you are evaluating if and when you will make a move to a new house. In yellow, are all of the inputs you will need to provide, or that you and I can determine together, such as your current payment, your home's current value, your mortgage payoff, whether you will be putting any additional money into the transaction, etc. In green, I have identified your potential future mortgage payment and the net change in your monthly payment. All of the numbers without a background color will automatically calculate for you. Click here to download this worksheet as an editable Excel file. | |
You Might Not Want To Spend As Much As You Are Qualified To Spend On A Home |
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Most folks who buy a home this year will not be paying cash. An important early stage of the home buying process is to talk to a lender to become pre-approved for a mortgage. As you meet with a lender, remember that there is often a difference between:
If you are looking for a qualified mortgage professional, shoot me an email (scott@hhtdy.com) and I can give you some recommendations. As you are navigating the home financing process, I am happy to help you understand the information you are receiving and the decisions you are being asked to make. There are a variety of loan programs that can likely work well for your situation, but we'll want to make sure you are aware of all of your options. Learn more about the home buying process at BuyingAHomeInHarrisonburg.com. | |
How Often Do Home Sellers Provide A Closing Cost Credit? |
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Looking back over the past year it seems that slightly fewer than half (46%) of home sellers provided a closing cost credit to the buyer for their home. It is not altogether surprising that many buyers ask for a seller paid closing cost credit. With interest rates so low, it is not a crazy idea to incorporate some of your closing costs into the mortgage by increasing the purchase price and mortgage amount by a few thousand dollars. Here, then, is how much sellers paid in buyer closing costs over the past year in the 46% of the cases where the seller did provide such a credit... So, if, as a seller, you are paying part of a buyer's closing costs, you are most likely to be paying between $4K and $6K --- or between $2K and $4K. And again, as a seller, if you pay part of the buyer's closing costs -- you are not alone -- 46% or so of sellers do so! | |
Home Buyers In 2020 Are Locking In Ridiculously Low Mortgage Interest Rates |
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If there is one trend line that we like to see declining -- it's mortgage interest rates! :-) The interest rates at which buyers are financing their mortgages have been lower and lower and lower as we have progressed through 2020, and are now right around 3.13%. If you are thinking about buying a home in 2020 and IF you can secure a contract on a house despite LOTS of competition from other buyers, you are likely to be financing your mortgage at one of the lowest mortgage interest rates ever seen! Perhaps that is fueling some of surge of buyers currently in the market? | |
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Scott Rogers
Funkhouser Real
Estate Group
540-578-0102
scott@funkhousergroup.com
Licensed in the
Commonwealth of Virginia
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