Home appreciation continues to reach historic highs as tight supply and strong demand lead to an extremely competitive housing market. According to the S&P CoreLogic Case-Shiller home price index, prices in February rose 12% year over year across the US. This 12% gain is a 15-year high, and Seattle is one of the top cities with a gain of 15.4% year over year.
Those trying to enter the housing market are feeling the frustrations and disappointments of a competitive low inventory market. In many cases, buyers are having to make over five offers on homes before getting one accepted. However, the risk and rewards can quickly make sense when you consider the yearly equity gains with appreciation being higher than most full-time annual salaries. With a 15.4% gain in home prices year over year in Seattle, a person purchasing a $750,000 home last year would have gained $115,500 in appreciation on average. Historically low interest rates are also helping give a small boost to your purchasing power, so long as they remain low.
In the end, the most important thing prospective homebuyers need to consider is if are you in a position to responsibly take on a mortgage payment. Make sure you are evaluating a range of factors including your finances, personal life, and future. Connect with us today if you have any questions. If you have anyone looking to get pre-approved to purchase a home or refinance, we’d love the opportunity to serve them!
Mortgage rates reached all-time record lows in 2020 and are expected to remain low through the end of the year. COVID-19 has created a crisis for many economic sectors, and as a general rule of thumb, weak economic data tends to cause lower mortgage rates. However, there are numerous indicators suggesting rates will increase in 2021 that we will discuss in this blog post. Fannie Mae is predicting the 30-year fixed rate to remain near 2.8% for 2021 and 2.9% for 2022. The National Mortgage Bankers Association is predicting we will reach 3.3% by end of 2021, and 3.6% by end of 2022.
The record low rates we are currently experiencing have been brought on by weak economic data shown in the poor numbers for the labor market, employment rate, and consumer spending. With news of successful vaccine trials giving hope for ending global lockdown restrictions, prospects for economic growth will gradually improve and likely push mortgage rates up in 2021. So far, the stock markets have also seemed to welcome news of a Biden presidency. Continued optimism in the stock market would persuade investors to shift money out of safer investments like mortgage-backed securities and into riskier assets like stocks, further increasing the potential for rising mortgage rates.
Lastly, while we expect mortgage rates to rise, we don’t expect them to rise quickly or very much. The fallout from a global pandemic will take time to recover from, and the housing industry is one of few current bright spots of the economy being supported by low mortgage rates. The Federal Reserve has also committed to keeping its Federal Funds Rate low, which indirectly impacts a broad range of markets including mortgages. If we were to see rates rise half a percent from its current 2.75% to 3.25% in 2021, we can expect an average borrower who qualified for a $400,000 loan to lose about $25,000 in purchasing power as a result of the 0.5% increase in rate.
- Market Watch – COVID-19 vaccines would improve prospects for economic growth and push overall interest rates up
- National Mortgage News – Fannie Mae predicts 30-year to remain near 2.8% for 2021 and 2.9% for 2022. MBA predicts rates will reach 3.3% by end of 2021, and 3.6% by end of 2022
- Bank Rate – “My gut feeling is that rates are going to rise in the next year,” Johnson said. “You’re just not going to get investors willing to accept 1 percent returns,” he added. “As COVID ebbs away, these record low interest rates will ebb away.”
- The Mortgage Reports – Markets welcomed news of Biden presidency, leading to more money flowing into stocks.
- How rates impact a borrower’s purchasing power:
- $400,000 Loan’s Monthly Principal & Interest = $1632.96 (30-Year Fixed at 2.75%)
- $375,000 Loan’s Monthly Principal & Interest = $1632.02 (30-Year Fixed at 3.25%)