Now is the time for home buyers to commit. 2018 is expected to bring mortgage interest rate hikes as the economy is reinvigorated; 2017 has been green, not red and not blue. Green to the point that the Federal Reserve is confident in their assertion of at least three, likely four increases in the discount rate during 2018. They see the economy as continuing to strengthen and to a large extent; they want to maintain a balance keeping the economy strong while avoiding inflation or deflation. In the real estate world, this means that we are likely to see a rise in mortgage rates.
Rates will increase in ’18 and some buyers will be unable to secure mortgage approval. For those ready, the time to act might be now as the mortgage industry expects at least a 0.5% increase by 12/18 for those with good credit. Marginal and poor credit will be higher.
What does this mean for home buyers? Depends. Naturally payments will be higher across the board but the impact will vary from minimal to disqualifying. For those extremely rate sensitive (where a slight increase means the difference between qualifying and not) it means decide if now is the time to buy. If so, then make a concerted effort to get moving in that direction. As of today (mid 12/17) a 30 yr fixed for a good credit score is about 4%. FHA, small down payments or lower credit scores will increase that rate. Toss in mortgage insurance if required and monthly costs increase further. There are a ton of variables with every mortgage so actual rates will vary.
The expectation among the mortgage industry is that rates for a 30 yr fixed in 12/18 will run around the 4.5% range. This isn’t a huge increase but for many, particularly first time buyers, it can make a difference. For those in the FHA path or with mortgage insurance requirements, the hit might be even harder. Consider other debt, especially the insidious student loan scam, and that 0.5% on a loan becomes a bridge too far.
So then the question is, what about rents? Well in Atlanta “Metro” – a VERY broad area – rents year over year have continued to increase. Depending on bedroom count and area, the increases include 2BR Roswell units up 11.6%, 1BR Sandy Springs units up 8.8% and 3BR units in Marietta up 3.6%. While month over month varies, the year over year stats are sobering. Investors and landlords are obviously watching the market; as potential home buyers fall off as rates increase, they’ll be waiting…with rent increases.
There is no easy answer for rate sensitive buyers; those on the edge may be pushed off as rates increase. The best course of action – for those ready and able to buy – might be to move up the time table and lock a rate. Now is the time to research and qualify the two most important assets any home buyer has, an experienced real estate agent and an experienced mortgage broker. 2018 is going to be a very fast moving market and if the Fed acts as expected, some potential home buyers may be stuck if they fail to plan ahead or work with inexperienced hacks. It is likely to be a crowded pool…