The housing market is in an interesting position, where
prices are coming down, while mortgage interest rates are beginning to
rise. People are repeatedly warned that
the days of record low affordable home financing are behind us. Where once if you planned to purchase a home
in the medium to long term it was considered unaffordable, the cost is now
getting more expensive in the short term as well.
In the real world, nine out of ten would-be homebuyers
require a mortgage to purchase a home, the few exceptions being those with at
least $400,000 to spare. The cost of a
mortgage over the lifetime of the loan increases with interest, which becomes
more expensive depending on the corresponding mortgage rate.
In the period during and immediately after the Great
Recession, mortgage rates were reduced to near record lows to help soften the
economic impact on the housing market.
The lower rates allowed more people to remain active participants in the
housing market. Housing is an important
part of the economy, and without a strong housing sector, the economic recovery
is abysmal at best.
However, the days of record low rates are moving quickly
behind us. Housing indeed remained
strong, and helped drive the economy back to a robust state. As a result, the need for lower financing
rates has passed, and would-be buyers can expect the cost for a home loan to
increase in the weeks and months ahead.
Economists and realtors are advising buyers who may be on
the fence to find an affordable
mortgage rate, and lock in now. In
the last few weeks, rates increased by 50 basis points, and as the economy
projects stronger numbers in GDP, employment, and trade opportunities rates
will continue to rise with the economic indicators. An advertised mortgage rate today could be
significantly higher as early as next week.
At the same time, people are advised to only apply for a
loan if they can afford the payments.
Easy access to credit resulted in a number of bad loans prior to the
recession, which eventually caused the economic turmoil. If current rates are unaffordable or barely
manageable today, consider holding off on becoming a homeowner until you can
afford unexpected changes in the cost of your mortgage.
