Mortgage Interest Rate Update and Forecast

March 17, 2011 Posted by Andre Hemmersbach

Believe it or not, the greatest determiner of affordability is not the sales price of the home but the interest rate on the mortgage that you use to qualify for the home. More on that at the bottom of this blog but understanding that fact it comes as no surprise to me that the question that I get asked the most is where are rates headed. Here is my quick crystal balling outlook for rates for the remainder of this year.

Short term: Rates are extremely volatile and if you are closing your transaction in the next 4 weeks my advice is lock your rate! These last three weeks’ rate drop has given us a breather from the daily rate increases of January and February. What has changed? Investor’s focus has gone from “Is the US economy recovering” to “what is going to happen in the Arab nations”, “what is going to happen with the Euro currency crisis” and “what is going to happen in Japan.” The answer to all of those latter questions point to instability and are terrible but are also temporary in nature. As soon as they are resolved, for better or worse, the attention will come back to our strengthening economy. Today’s initial jobless claims came in right at expectations and show strong signs of an improving labor market. A higher than expected Philly Fed Index, a regional manufacturing survey, came in much stronger than expected. And CPI (Consumer Price Index) came in hotter than expected. All three of these reports show a strengthening economic picture and the bond market pulled back (rates increased). Later in the day news from Libya and Bahrain had bonds rally and rates pulled back as investors sought the stability and the safety of the US markets and its currency.

Long Term: The improving economy, improving labor markets higher inflation all point to higher rates. These factors will push rates higher within weeks not months and will be intermixed with very volatile market moves. With each new economic report reaffirming the economy is pulling away from the abyss, slow as it may be, investors will know that the fed will need at some point increase their Federal Funds Rate to slow inflation and moderate growth. With each new economic report confirming stronger jobs, higher prices and higher profits investors will increase their requirements for higher returns on their investments.

Back to the real question: Wait for lower home prices or jump in now before rates move up more? The following figures may help you quantify your decision. On a $300,000 sales price with 5% down payment ($240,000 loan amount) your principal and interest payment at today’s rate of 4.625% is $1466.00 per month. If the sales price drops $10,000 to $290,000 but rates move to 5.625% your payment with 5% down is now $1586 or $120 more per month. Your qualifying income was $4442 per month and has now moved to $4806 per month.

If I can be of assistance to you or your family as it relates to real estate, please let me know. I would be honored to help.

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About Andre Hemmersbach

Andre Hemmersbach has been working in the mortgage banking business for over 20 year helping people successfully finance their real estate holdings. He can be reached at (310) 540-1330 #137.

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