Flat Mortgage Rates

Since 2010 the 30-year fixed mortgage interest rates have ranged from a high of 5% January 2010 to a low of 3.35% at the end of 2012, but for the last year we’ve been bouncing between 4% and 4.5% per FreddieMac.com. Is this the end of the super low mortgage rate trend? What can we expect in the coming year?

If this trend continues:
Hypothetically, mortgage interest rates could continue to stay in this range for the foreseeable future. A combination of a continually struggling economy, a decrease in mortgage applications, poor or stagnant job news, and mediocre GDP could keep rates at what is still a very low and reasonable point. This could mean more first-time buyers will realize that homes are affordable and purchases could take an uptick. Agents would do well to focus on attracting first-time buyers and developing strong relationships with mortgage lenders who can pre-approve their clients quickly.

It could also mean that people who refinanced when rates were in the 3 percent range will sit tight and stay in their current homes, keeping the housing inventory low and suppressing the market. This will make it hard to generate new business for agents, although for homes that do go on the market, prices should be high, leading to healthy commissions.

If rates fall:
Despite global unrest and a negative impact on the stock market, rates aren’t really falling. Most experts don’t see lower mortgage interest rates in our future anyway; the predictions have all indicated a [admittedly very slow] rising trend. But if rates did happen to fall, competition for new homes could become fierce, even in parts of the country where inventories are stable and home prices are not inflated. Agents will need to be ready to go to bat for their clients and may even need to resort to some unusual tactics such as those seen in New York and San Francisco, where competition for scarce properties is so competitive that potential buyers are writing personal letters to homeowners to appeal to their emotions, offering to clear out the junk in the basement, or agreeing to delay closing to suit the homeseller’s needs.

If rates rise:
Good news on the jobs front has not been influencing mortgage rates as economists would normally expect, but that could change, sending rates higher as consumer confidence grows. A rise in mortgage rates reduces clients’ purchasing power and can stifle the market. Homeowners who remember the historically low rates of the past few years may balk at higher rates and stay put rather than downsize or upsize, while first-time buyers may be shut out of the market altogether. Counselling potential buyers to move into the market now while rates are still extremely reasonable is some of the best advice you can give your clients.

Of course, there’s no way to predict with certainty which way rates will go. The economy, the end of quantitative easing, and even the fall election cycle will all impact the housing market and in turn the mortgage rates, to differing degrees. What we do know is that despite the ups and downs in the market, real estate remains a smart purchase, for both a place to live and an investment for the future. Let’s get your clients ready to build their portfolios by managing their mortgage(s)!

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