The average rate on 30 year fixed-mortgages fell to a record 3.91%, the third time this year that rates hit new lows. Rates have been below 5% for all but two weeks in 2011. The current 3.91% rate is the lowest average for long-term fixed mortgages in six decades. What determines the trajectory of interest rates? A number of factors establish the direction of interest rates. Actions by the Federal Reserve, the health of the economy and the rate at which people are saving money.
The housing industry is strongly affected by changes in interest rates. The higher the rate, the more a borrower must pay in the form of interest on the loan. The United States Federal Reserve will set a rate at which it lends money to banks and lending institutions. This in turn, affects the rates individuals will pay obtaining mortgages. With the lower interest rate, consumers are more likely to borrow money. The opposite happens as rates increase, borrowing becomes more expensive and less appealing.
Buyers who choose to wait until home prices come down more, are gambling that interest rates hold steady. Home prices are now at 2003 levels and interest rates are the lowest since the 1950’s. As I converse with buyers at open houses and other day-to-day activities, one topic comes up often, “What’s the future of home values”? “I would be more concerned with interest rates rather than a slight movement of home prices”. “You only pay that price once, but you’ll pay the higher rate every month for as long as you own the home”, is my response.
Low interest rates are one of the keys to the housing recovery. A 10% drop in home prices is nullified by a 1% increase in interest rates. Mortgage rates have been a shining light in an otherwise gloomy real estate market. Prospective home buyers need to understand the financial impact, low-interest rates have on the cost of home ownership and the thousands of dollars that can be saved over the life of a typical mortgage.
For those that can afford to buy, trade up, or invest, today’s housing market presents a lifetime opportunity that could vanish, depending on the direction of mortgage rates. How will rates react to an improving economy? How will higher inflation effect interest rates? Will the presidential election have any bearing? Please visit my website www.JohnnyBrooksHomes.com for helpful tips on buying or selling a home, scan my other informative blogs and easy access to view local area homes for sale in Davis, California and the surrounding communities.