Apr

17

What’s Going to Happen to Mortgage Rates: You’re Going to Pay More

Filed Under Buyers, Mortgage Matters, Sellers, Sellers & Buyers | Comments Off




So you’re wondering what’s going to happen to mortgage rates. If you’re a buyer, you’re wondering that because you are trying to figure out how much the cost will rise for your monthly payment. If you’re a seller, you’re thinking about a lot of things and saying to yourself, “I should have sold 3 years ago”. But I digress.

When we look at information available to us, we see that mortgage rates are going to rise and we wonder, how that might impact the Long Island real estate market. Well just like any other market, when rates rise and demand remains lower than supply, prices must drop in order for someone to sell their home.

But let’s really look at the added costs of an increased mortgage rate.

Mortgage Rates

Now this graph is packed with a lot of different information about mortgage rates.

The Impact On Buyers
Well first thing you must realize is that in order for you to buy a home and pay about the same price per month for that home as the rate goes up, you’ll notice that the price of the loan must go down significantly. Let’s say you’ve been looking for a while and you see a few houses or one in particular that you love. But for some reason, you’ve held back for reasons such as…well to put it bluntly, fear.

Let’s face it, this economy has many people a little uneasy about the future. So you hold back for whatever reason, you want to wait until you get married, you need to “save more for the down payment”, prices are still too high, taxes are too much, the dining room is too small, and on and on.

Well look at that graph and ask yourself this: Do you honestly believe that this house you’ve seen or these few houses that are “potentials” will be there 10% from now? What I’m saying you to ask yourself is, will this same house or houses be on the market for sale 5 months from now when rates are quite possibly 1 full percent higher than they are now? Maybe. But more than likely, if you’ve got your eye on a nice house that you really like or love, chances are so does someone else. And if they’re a little less afraid than you, guess what, they’re buying it.

Another thing for buyers to look at is simply the savings. Paying 6% on a loan as opposed to paying 5% on a mortgage rate is a no brainer. You will save more money. And again, this graph is based on prices dropping as the rate goes up. Just because the rates goes up, doesn’t mean that the home(s) you like has to sell (or can sell for that matter – given the likelihood that they have a mortgage to pay off).

The Impact On Sellers
The cold harsh reality of the market is that prices are going to continue to see-saw in a downward spiral. Every economic and real estate expert out there predict a further decline in prices. Here on Long Island, the simple curve of supply exceeding demand will absolutely keep prices from appreciating for the near future (6 to 18 months).

With the flow of homes off and back on the market and increases in foreclosures, this extra supply, as it comes in waves, will continue to keep prices from going up.

Now this graph adds an element that is not seller-friendly. Historically, a 6% mortgage rate is incredibly good. However, given the current economic situation, decreased consumer spending and high unemployment (currently over 7% on Long Island), a 6% rate might as well be 8 or 9% in a “normal economy”.

Buyers on Long Island, with the high taxes and cost of living that exceeds about 90% of the rest of the country, living here isn’t cheap and many buyers don’t have $80,000 to buy a modestly priced home of $300,000. Remember, the standard, “good loan” for a home is 20% down (on $300,000 that’s $60,000) and the other $20,000 is for the very high closing costs associated with buying on Long Island.

So looking at the graph, as the mortgage rate goes up, if you need to sell, you will absolutely be forced to drop your price as the rate goes up. There is no question about this. Why? Because the buying market won’t have buyers to purchase your home at a 6% mortgage rate at the current prices of today (April 2010). And please note, that I’m not even mentioning the home buyer tax credit that is expiring in 2 weeks that’s helping home values remain somewhat stable. Without that, prices will drop.

But there’s definitely hope in that if you hire the right agent, who uses cutting edge technology to market your home, buyers will check out your home more often than just having it sit idle on mls, overpriced. Oh by the way, that “right agent” – that’s me – click here and let’s get started!

So What About The Mortgage Rate Anyway?

Let’s look at what experts are saying.

Where are mortgage rates going

From Moody’s Economy.com to Credit Suisse to Barclay’s Capital, we see that the experts are predicting increased mortgage rates. Why? Read my article on what’s happened in the last month with the Fed.

National speaker and residential real estate guru, Steve Harney, talks about how since 2006, April to July months have seen mortgage rate volatility.

mortgage rates

So to close this discussion out, I think it’s particularly important for buyers and sellers to consider their options. Information like this is invaluable and I hope it helps you make the best decisions for you and your families. If you have any questions at all, I can always be reached at (631)831-9048.

By the way, if you missed the commission discount I’m offering for home sellers, please click here.

(c) Copyright, 2010 www.tommcgiveron.com
By Thomas McGiveron, Licensed Real Estate Salesperson
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