The market is at a turning point for the worse due to growing worries about inflation. While it is not a problem right now (although the consumer price index did just rise the most in 10 months), there are several strong economic factors emerging that typically lead to higher prices to the consumer and thus higher mortgage interest rates down the road.
While the Federal Reserve said they wouldn’t raise rates until 2014, Mark Zandi, chief economist at Moody’s Analytics and many more economists don’t believe that they’ll be able to stick to that promise. A stronger dollar, improving jobs markets, and rising commodity prices (like food and oil) are adding to pricing pressures on everyday goods leading to inflation. As a result, the Fed could be forced to raise interest rates sooner than expected to keep inflation in check.
Before the Fed raises rates, the markets will be the first to react; and they are. They will do this by selling off treasury bonds; and they are. As they do this, the yield on long term treasuries will rise and when the yield rises, so will long term mortgage interest rates. Here’s a long term mortgage interest rate forecast by FFC:
A consumer’s experience with inflation is very different. What matters most to people is that they’re paying a lot more for food, gas, education and especially rent. Let’s take rental rates in the Minneapolis-St. Paul market in Minnesota. Year-over-year, rental rates are up 11 percent! This chart shows how bad rental rates in Minneapolis-St. Paul are by comparison to national averages:
It will be tempting for would-be homebuyers to get discouraged with mortgage interest rates increasing but they should remember that at the same time rates are going up, housing affordability is at new records
due to steep drops in home prices. Also, some buyers will get skittish over this and stay on the sidelines of the housing market which will not only hurt them in the long run (by leaving them with an even higher rate) but also put the buyers that don’t hesitate in a much better position to get sales concessions when they buy their new home in the short-term or intermediate term. This turn of events could actually be a good thing for those in the market for a new home now.
Happy House Hunting!
Charles Dailey – Branch Manager, Loan Officer, Certified Military Housing Specialist – CA DOC, MN DOC & WI DFI
The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.
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