Scenes from the Mortgage Roller Coaster
A mixed bag of mortgage and housing news:
- Thirty-year mortgage rates popped back above 6% for the first time since the start of the year
- Home sales recorded their slowest month since 1999
- The dollar sunk to a new low against the Euro
Clearly, the first item is bad news for home buyers, while the second is good news. It is the third item, however, that ought to be a reminder for home buyers to have a sense of urgency about finding a property.
The Mortgage Roller Coaster
It’s been quite a ride for mortgage rates. From a high of 6.74% last June to a low of 5.48% in January, and now back above 6%. This shouldn’t come as a big surprise — given the level of inflation, sub-6% mortgage rates were probably too good to be true. Besides, thirty-year mortgage rates have never stayed below 6% for very long.
By way of perspective, it is useful to remember what a “normal” mortgage rate is. Historically, thirty-year rates have most commonly been in the 7% and 8% ranges, with six years each spent at those levels. Mortgage rates have actually been in the 10% range as frequently as they have been in the 6% range, with five years at each of those levels. In short, not only could rates be a lot worse for borrowers, they usually are.
Besides, anyone who has their heart set on a mortgage rate below 6% could consider a fifteen-year mortgage. Those rates are still solidly below 6%.
The ultimate determinant on whether or not a mortgage rate is “high” or “low” is whether the borrower can afford the monthly payment. In other words, a mortgage calculator will tell borrowers more about what they can afford than history will. It’s how well the payments fit the individual’s budget that matters. Speaking of which, regardless of mortgage rates, home prices are making that an easier and easier fit.
Home Prices Continue to Fall
Both home prices and sales volume continue to fall. While this is widely reported as bad news, it does mean that housing is getting cheaper every day.
Home prices may seem like the most obvious indicator of bargains in the housing market, but buyers should not overlook the significance of sales volume. Weak volume suggests that the market may be softer than prices indicate. With sales volume low, buyers have the bargaining power. Beyond price, there are all kinds of concessions there for the asking, from throw-ins like new utilities to having sellers pick up closing costs. There’s a reason they call this kind of thing a buyer’s market…
What Does the Dollar Have to Do with It?
Houses aren’t imports, so why does the sinking dollar matter? Because a lower dollar is inflationary, and when inflation rises, so do long-term interest rates like mortgage rates. The value of the dollar is rarely reported on in the context of the housing market, but the weakness of the greenback is what ought to galvanize home buyers into action. There may come a day when people are looking back fondly on when mortgage rates were only around 6% — and those who locked in mortgages at that level will feel pretty smart.
Tags: borrowers, interest rates, mortgage, mortgage rates
