Despite what you may be thinking, mortgage rates won't skyrocket due to rising interest rates this year. Even though the Fed raised interest rates a quarter of a point recently, rates are still at historic lows and will probably remain that way for the foreseeable future. Still, with a couple more forecasted rate hikes on the way later this year, you may see mortgage rates rise about half a point.
Kiplinger reports that 30-year fixed mortgage rates will probably hit 4.6 percent by year's end and that the 15-year fixed mortgage rates will rise to 3.8 percent. Historically speaking, that still is much lower than the most of the mortgages rates dating back to 1980s.
A Quick Primer on the Prime
When the Fed raises rates a quarter of a point, that is not the prime rate, although the two are closely linked due to the bond market. Usually the prime is two or three percentage points above the Fed's rate--and there's little direct link to your mortgage rates other than consumer confidence. The prime rate is more linked to short-term loans and consumer credit. The lower the rate, the less expensive it is to borrow. When it is cheaper to borrow, prospective homeowners tend to feel good about the economy. Mortgage rates tend to decline unless there's inflationary woes afoot. If there's a jittery economy, then potential homeowners tend to wait until they're confident that they will get the most bang for their buck before they buy.
The question is: is that time now? Let's peruse a brief history of mortgage rates and consumer confidence.
The 80s: Sock It To Me Mortgage Rates
Homeowners struggled with mortgage rates over 10 percent in the late 1980s. Still that was nothing compared the 18 percent rates on a 30-year fixed mortgage which peaked in 1981 due to inflationary woes resonating from the post-war economy and shortages from the seventies. High interest rates meant higher monthly payments and longer to pay off mortgages in an already unstable economy. It wasn't until the early 1990's that consumers began to feel more confident that they weren't throwing their hard-earned money into paying off interest and no principal.
The Flip-Flopping Rates of the 90s
Mortgage rates were up-and-down in the 1990s although the prime rate began to noticeably dip from just below 10 percent to hover around 8 percent. Consumer confidence grew in the 90s and home ownership rose overall about three percent.
A New Century, A New Mind-Set?
The prime rate underwent a series of ups and downs through the early turn of the 21st century from a high of 9.5 percent in the early days to the unheard of 3.25 percent in December 2016. Home ownership peaked to nearly 70 percent in late 2004 falling to about 63 percent today. Why the fall when interest rates were at historic lows?
When the economy destabilizes as it did during the foreclosure crisis it takes time to correct itself. Home ownership fell because potential homeowners didn't feel confident that the home they would buy would retain its value. Many home mortgages went belly-side up and homeowners found themselves underwater. This is no longer the case. The economy has spent subsequent years recovering (correcting) and homes are selling and people are buying.
Today's Historic Rates: Why It's Still A Buyer's Market
If history has taught us anything about buying into the American Dream, it has taught us that there are many economical factors that influence the decision to buy a home:
- interest rates (this can cause less incentive to save if interest rates are too low to provide decent return on investment--this causes consumers to buy)
- borrowing costs
But none more significant than consumer confidence.
Rates will hover around the four percent mark for much of 2017. The stock market has reached historic highs, the prime rate remains steady, unemployment is lower and incomes higher, creating consumer confidence which has taken the fear out of buying a home.
Be empowered with the confidence you need to make the right decisions regarding financing your home. At Wyndham Capital Mortgage, you will have a professional with you every step of the way throughout your mortgage process.