Andrew Darda
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Mike Darda
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Mortgage Rate Rises - How Will They Affect You?

Wednesday, November 23, 2016

Following on from last week's blog, mortgage rates have continued to rise so far this week.

Mortgage News Daily is currently quoting a benchmark 30-year rate of 4.10%, which around is the highest we have seen for some time. Only time will tell if this is as far as rates climb, or if they still have further to go.

And even though it's disappointing that they have risen, we shouldn't lose sight of the fact that, even at 4.10%, rates are still incredibly affordable from an historic viewpoint. The issue is, of course, that we've all become very accustomed to rates hovering around the 3.5% mark.

As we've stated many times before, however, this was never a sustainable position, so well done to you if you took advantage of the ultra-low rates. Quite simply, it's impossible to know if they'll ever return and we now have to look at a new situation that's still evolving.

It's now just over two weeks since the election and much has changed in terms of the optimism in financial markets and we shouldn't lose sight of the fact that the higher home borrowing rates we're seeing are, in fact, a result of more confidence in the economy moving forward.

In truth, this isn't the first time that there have been positive signs that could have raised mortgage rates in the manner we're presently witnessing. However this is the first time in recent memory where other negative international news, like Brexit, hasn't offset the good news here at home. So it's not unreasonable to take the view that what we are seeing is mostly a market correction to more realistic borrowing rates (remembering that mortgage rates are closely related to the appeal, or otherwise, of safe-haven bond investments).

Markets will also be taking extra confidence from Tuesday's announcement by The National Association of Realtors® (NAR) that existing home sales hit a 10-year high in October, rising to the highest annualized pace in nearly a decade. Considering that October isn't high season anywhere, this bodes remarkably well, looking ahead.

Of course, it's also reasonable to suggest that October's high figures were perhaps a sign that buyers weren't keen to wait until after the election before they made a buying decision. And unfortunately this won't be instantly obvious whatever November's figures turn out to be, due to seasonal variations.

So where does the current situation leave both buyers and sellers? with the proviso that the present scenario may, or may not, represent a settled position, along with the critical caveat that rates can still go down, or up even further.

We can therefore only really deal with the present situation and the likelihood that, as a market correction is possibly taking place at the moment, rates are perhaps more likely to travel further north than south.

Sellers will therefore possibly have to accept that affordability will be a bigger factor for buyers, moving forward, with possibly less interest and a slowdown in demand. In the short term, of course, there is certain to be a reaction to these higher rates, with some buyers waiting (or should we say gambling?) to see if the trend continues. On the other hand, there could be short term demand stimulated by other buyers taking the arguably more pragmatic position that they would rather lock in the current rates than risking them moving even higher.

We could therefore see price pressure in the market and a shift in dynamics away from the seller's market we've been in the midst of for some time to a position where buyer power progressively increases.

And although buyers will be facing higher mortgage payments, we shouldn't forget that more realistic property pricing can, of itself, act as a tremendous market booster. We've been seeing steady price growth for some time, so a reversal to some extent, while it might not initially be welcomed by sellers, can help to offset higher borrowing costs and enable market momentum to be maintained.

As the recent NAR figures have demonstrated, there is so much to be optimistic about and we've also seen millennials entering the housing market in much higher numbers this year, making home ownership a core aspiration once more, in the certain knowledge that renting isn't going to get any cheaper.

In summary, therefore, although the precise nature of these new market forces is still in its formative stages, and nothing is certain moving forward, homes will still sell, borrowing is still very competitive and the market will adjust to accommodate it all.

Why not contact us today to discuss how to make the most of the current situation.

Happy Holidays.

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