Andrew Darda
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Mike Darda
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Mortgage Rates – Time for Some Perspective

Friday, November 18, 2016

For some considerable time now, low mortgage rates have had a tremendous positive influence on the success of the homes market.

We've all gotten very used to seeing rates in a seemingly continuous fall. Yes, there's been the odd upward trend, but they've soon begun to move south once more.

Following the election, however, rates have moved just above the 4% mark for a 30 year home loan for the first time since early this year. 

This has led to some rather extreme press coverage about the effect on the housing market and, indeed, the future trajectory of rates and implications for the real estate industry in general.

Now is therefore a good time for some calm thinking and to sit back and examine the situation with a slightly longer term perspective.

Let’s first look at what has caused the upward spike in rates.

Irrespective of the winner, it was always on the cards that financial markets would react to the certainty of who would be President, plus the future composition of the Senate and Congress.

And so it proved to be, with a quick fall in stocks followed by a sustained rally.

This had the side-effect of making bonds less attractive. Bonds are a tempting safe-haven investment option and aren't so appealing when risk aversion is lifted to some extent, even in a relatively short period of time.

Unfortunately, mortgage rates are closely tied to the fortunes of bonds and, when bonds do well, as has been the case for some time until very recently, we generally see home loan interest falling. Of course, with stocks back in vogue, the opposite effect is currently in place.

As ever with markets, there are no certainties and what may seem like a sustaining trend can very quickly head in the other direction. In truth, no one knows exactly what will happen.

In terms of where rates are at right now (this morning Mortgage News Daily was quoting a benchmark rate of 4.03% for a 30 year loan), we can gain some valuable perspective by traveling back in time almost exactly a year, when most experts were predicting a gradual rate rise to somewhere around 4.5% and 4.65% during 2016. Clearly we are still some way from that, with less than a month and a half of the year remaining.

The expert forecasts were thwarted by a long list of external factors that led to widespread risk aversion. Perhaps most notable among these was Brexit in the summer, the fallout from which caused a major downturn in rates.

This simply goes to prove that the future is anything but predictable. The reality is that rates could possibly even reduce again, stay roughly where they are right now, or start to climb once more.

The only sure thing, therefore, is whatever the current situation happens to be and the fact is that current rates remain amazingly good value, especially from an historic perspective.

Maybe the big rate falls we've seen this year will never come back. Maybe they will. However, this should not detract from the simple fact that today you can still lock in what is, to all intents and purposes, a very low rate.  Playing a waiting game is nothing more than gambling.

Sellers should also consider that a rate rise can sometimes lead to a surge of buyers jumping onto the market, in case rates should move higher.

As always, we'd be pleased to discuss any aspect of the current market conditions with you. We can also put you in touch with the area's top mortgage professionals. Why not contact us today.

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