Why of Rising Interest Rates and When Renting can trump Buying

Why Are Mortgage Interest Rates Increasing?

According to Freddie Mac’s latest Primary Mortgage Market Survey, the 30-year fixed rate mortgage interest rate jumped up to 3.94% last week. Interest rates had been hovering around 3.5% since June, and many are wondering why there has been such a significant increase so quickly.

Why did rates go up?

Whenever there is a presidential election, there is uncertainty in the markets as to who will win. One way that this is noticeable is through the actions of investors. As we get closer to the first Tuesday of November, many investors pull their funds from the more volatile and less predictive stock market and instead, choose to invest in Treasury Bonds.
When this happens, the interest rate on Treasury Bonds does not have to be as high to entice investors to buy them, so interest rates go down.  Once the elections are over and a President has been elected, investors return to the stock market and other investments, leaving the Treasury to raise rates to make bonds more attractive again.
Simply put, the better the economy, the higher interest rates will go. For a more detailed explanation of the many factors that contribute to whether interest rates go up or down, you can follow this link to Investopedia.

The Good News

Even though rates are closer to 4% than they have been in nearly 6 months, they are still slightly below where we started 2016, at 3.97%.
The great news is that even at 4%, rates are still significantly lower than they have been over the last 4 decades, as you can see in the chart below.

Any increase in interest rate will impact your monthly housing costs when you secure a mortgage to buy your home. A recent Wall Street Journal article points out that, “While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.”
Tom Simons, a Senior Economist at Jefferies LLC, touched on another possible outcome for higher rates:

“First-time buyers look at the monthly total, at what they can afford, so if the mortgage is eaten up by a higher interest expense then there’s less left over for price, for the principal. Buyers will be shopping in a lower price bracket; thus demand could shift a bit.”

Bottom Line

Interest rates are impacted by many factors, and even though they have increased recently, rates would have to reach 9.1% for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

This is a good time to buy a home.  Want help connecting with an Accredited Buyer's Representative near you?  Give me a call (Lori Koschnick 920-901-4373).  It's a pleasure to help!  

Seller's Dilemma: OTM, FSBO or List Again?

 

When a ‘listing for sale agreement’ on a house is about to expire, home sellers must decide to either take their house off the market (OTM), For Sale by Owner (FSBO), list it again with the same agent, or list it again with a different agent.

Let’s assume you or someone you know is in this situation and take a closer look at each possibility:

 

Taking Your Home off the Market

In all probability, after putting your house on the market and seeing it not sell, you’re going to be upset. You may be thinking that no one in the marketplace thought the house was worthy of the sales price.

Because you are upset, you may start to rationalize that selling wasn’t that important after all and say,

“Well, we didn’t really want to sell the house anyway. This idea of making a move right now probably doesn’t make sense.”

Don’t rationalize your dreams away. Instead, consider the reasons you decided to sell in the first place. Ask your family this simple question:

“What made us originally put our home up for sale?”

If that reason made sense a few months ago when you originally listed the house, chances are it still makes sense now. Don’t give up on what your family hoped to accomplish or on goals your family hoped to attain.

Just because the house didn’t sell during the last listing contract doesn’t mean the house will never sell or that it shouldn’t be sold.

 

Re-Listing with your Existing Agent

For whatever reason, your house did not sell. Perhaps you now realize how difficult selling a house may be or that the listing price was too high, or perhaps you’re now acknowledging that you didn’t exactly listen to your agent’s advice.

If your listing agent's marketing and advice was exemplary, you may want to give your existing agent a second chance. That’s a perfectly okay thing to do.

However, if your agent didn’t perform to the standard they promised when they listed your home or you believe a different marketing style or additional services can lead to a sale, you may want to FSBO or try a different agent.

 

For Sale by Owner

You may now believe that listing your house with an agent is useless because your original agent didn’t accomplish the goal of selling the house. Trying to sell the house on your own this time may be alluring. You may think you will be in control and save on the commission.

But, is that true? Will you be able to negotiate each of the elements that make up a real estate transaction? Are you capable of putting together a comprehensive marketing plan? Do people who FSBO actually ‘net’ more money? 

If you are thinking about FSBOing, take the time to learn about testing and inspection contingencies, what financing products are suitable for purchasing your home and what are not, the average timeline in your current marketplace from application to financial commitment, the difference between a standard appraisal and an appraisal for U.S.D.A, VA, FHA, or WHEDA financing, state mandated disclosures, municipal regulations, current market value, the minimum acceptable down payment for various financing products, compliance with Fair Housing Laws as reflected in both your marketing and with whom you agree to schedule showing appointments and negotiate a sale, and where to find credible contractors for speedy evaluations and cures (asbestos, electric, fireplace, foundation, HVAC, LBP abatement, mason, pest control, radon, roofer, septic, surveyor, water, well, etc).

 

List with a New Agent

After failing to sell your home, you may no longer trust your agent or what they say. However, don’t paint all real estate professionals with that same brush. Have you ever gotten a bad haircut before? Of course! Did you stop getting your hair cut or did you simply change hair stylists?

There is good and bad in every profession—good and bad hair stylists, agents, teachers, lawyers, doctors, police officers, etc. And just because there are good and bad in every line of work doesn’t mean you don’t call on others for the products and services you need. You still get your hair cut, see a doctor, talk to a lawyer, send your kids to school, etc.

 

Bottom Line

You initially believed that using an agent made sense. It probably still does. Let's get together and discuss the possibilities.  It's a pleasure to help!

Home Staging:  To Do or Not to Do?

 

Do This…

• Hang a mirror on the wall opposite the front door - or in a location close to the front door - so that prospective buyers can ‘see themselves’ in your home.
  
• De-personalize and add breathing room by removing family photos, trophies, souvenirs and children’s artwork. Clean out drawers so they’re no more than 30-percent full.
• Place only a few pieces of furniture in each room and pull them away from the walls to make the room look bigger.
• While neutrals are the de facto palette when selling your home, add a couple of pops of color to an accent wall or cabinets to bring depth and personality to your home.
• Highlight tech and green features. Today’s homebuyers are keeping an eye out for smart-home features and green-friendly elements, such as smartphone-controlled thermostats and energy-saving appliances.

Not This!

• Don’t crowd a room with too-large furniture. If you crammed a king-size bed into your not-so-king-size bedroom, replace it with a queen.
• Don’t try to mask unpleasant odors with perfumed candles or baked goods in the oven. Have a professional cleaner get to the root of pet smells and musty scents.
• Don’t use colors randomly. Use a variety of neutral colors that flow nicely from one room to the next.
• Don’t confuse a room’s purpose. Make sure every room’s primary function is obvious, i.e., a bedroom should look like a bedroom, not a home office.
• Don’t neglect your home’s exterior. Even if you’re listing your home in the middle of a dreary winter, make sure porches and patios are neat and tastefully accented with outdoor furniture and planters.

This Is Home...and why I love helping you get there.

Home Improvements that Help Sell: In The Kitchen

Top Kitchen Design Trends for 2016

Photo credit: William Lesch; designed by: Lori Carroll and Associates, Tucson, Ariz.

Transitional, traditional, and contemporary styles remain the most popular in kitchen design but two new kitchen styles are popping up: industrial and farmhouse, according to the 2016 Design Trends Survey from the National Kitchen & Bath Association.

Neutral colors remain the dominate color scheme, with whites/off-whites, grays and beiges/bones being the most popular by far. Sixty percent of survey respondents report utilizing two or more colors within a kitchen space, a trend that has been growing since 2015. The two-tone trend is also growing more popular within kitchen cabinetry. Forty-two percent of designers report using a mix of color cabinets in their recent remodels. Respondents also reported in mixing up the kitchen color palette by using a different countertop material for the island versus the perimeter of the counter space.

NKBA reports the following top 10 kitchen design trends for this year:

1  Transitional style, with contemporary emerging.

Photo by: Jeremy Swanson; Designed by: Anne Grice Interiors, Aspen, Colo.

2  Gray/white/off-white cabinets.

Photo credit: Craig Thompson; designed by: Kitchen & Bath Concepts of Pittsburgh, West View, Pa.

3  Pull-outs, tilt-outs and tilt-ins for storage.

Photo credit:  Craig Thompson; designed by: Kitchen & Bath Associates of Pittsburgh, West View, PA

4  Wood flooring.

5  Quartz and granite countertops.

Photo credit: Mike Kaskel; designed by: Kitchen Encounters, Annapolis, Md.

6  Outdoor kitchens (mostly in the southeastern part of the U.S.)

7  Built-in coffee stations and wet bars.

8  Pocket doors.

Photo credit: William Lesch; designed by: Lori Carroll & Associates, Tucson, Ariz.

9  Special pet spaces (e.g. designated feeding stations, under-counter crate areas and special pull-outs to store pet food and toys)

Photo credit: Craig Thompson; designed by: Kitchen & Bath Concepts of Pittsburgh, West View, Pa.

10  Docking and charging stations.


By Melissa Dittmann Tracey, REALTOR® Magazine

Cheap Oil, Low Inflation Great For Today’s Mortgage Rates

 

Mortgage Rates Thrive With Low Inflation

Inflation is the enemy of low mortgage rates, which makes the current economic cycle wonderful for consumers looking to purchase or refinance a home.

According to the Federal Reserve, inflation rates have been persistently low and continue to run below the group's longer-term target of 2% per year.

Current inflation rates are far below this target, based on the most recent Consumer Price Index (CPI) report, which is published by the government.

More commonly called "The Cost of Living Index", CPI has fell short of the Fed's two percent target since mid-2014. And, today, with gas and energy costs down, it's unlikely that inflation will spike.

With inflation rates low, mortgage rates are expected to stay the same. Home affordability will rise and million of U.S. homeowners will be in position to refinance to lower rates.

Have you seen today's low mortgage rates?
Click to see today's rates (Jan 20th, 2016)

Mortgage Rates Linked To Inflation Rates

U.S. mortgage rates are closely linked to the rate of inflation in the economy.

Inflation is an economic term. It is the rate at which the price of goods change.

As an illustration of how inflation works "in real-life", consider how the cost of milk has changed since 12 months ago.

Today, it requires more dollars to purchase a gallon of milk today as compared to one year ago. In conversations, as consumers, we express this as "milk is more expensive than it used to be."

Economists, however, view the change in the price of milk differently.

To an economist, it's not that the milk got more expensive -- it's that the dollars we use to buy the milk isn't worth as much as it used to be. Same product, more currency required.

This is inflation. It's everyday items costing more because the value of our currency has eroded. And, it's this erosion that explains the link between inflation and mortgage rates.

U.S. dollars are worth less when there's inflation in the U.S. economy. Therefore, everything denominated in U.S. dollars is necessarily worth less, too.

This includes mortgage-backed securities (MBS), which are the basis for current mortgage rates on all of today's common home loans.

FHA loans, VA loans, and USDA loans, for example, feature mortgage rates based on mortgage-backed securities, as do conventional loans made via Fannie Mae and Freddie Mac; and, these loan types account for more than 90% of today's housing market.

Here's the mortgage rates/inflation connection:

1. Mortgage rates are based on mortgage-backed securities prices
2. Mortgage-backed securities are priced and paid in U.S. dollars
3. Inflation changes the value of the U.S. dollar, which changes the value of mortgage-backed securities and their payments to investors

When inflation rates rise, then, the value of mortgage-backed securities drops for investors because the underlying currency for the bond has experienced an erosion in value. This erosion affects demand for the bonds negatively, which leads MBS prices lower and mortgage rates up.

Conversely, when inflation rates fall, the value of mortgage-backed securities grows because the bond's underlying currency is now worth more, relative to prior months. This, too, affects demand -- but in a good way.

Bond prices rise when inflation rates drop, which causes rates to fall.

This is why it matters that today's inflation rates are running below the Fed's target of 2 percent per year; and, below economist projections.

Wall Street wasn't expecting a low Cost of Living Index. Demand for MBS is surging. Mortgage rates are dropping, as a result.
Click to see today's rates (Jan 20th, 2016)

The Federal Reserve And Inflation

The causes of inflation have been a matter of debate for centuries, with no clear consensus among the world's economists -- historical or current day.

However, inflation does exist and its runaway growth can present problems within an economy.

This is one reason why the job of "keeping inflation rate stable" falls to the Federal Reserve, our nation's central banker. It's one of two jobs that the Federal Reserve performs.

The group's first responsibility is to foster maximum employment. Its second is to maintain stable pricing.

The Fed deems an inflation rate of two percent to be "stable". Sustained inflation rates above two percent are considered too high over the long-term, and sustained inflation rates below two percent are considered too low over the long-term.

The latter scenario is sometimes known as disinflation, or deflation.

Deflation is the opposite is inflation. During periods of deflation, prices fall over a period of a time (or, the dollar's strength increases, depending on your viewpoint).

Falling prices may appear to be a good thing, but the effect of deflation on an economy can be as insidious as its opposite -- inflation.

In deflationary period, with prices in a downward spiral, consumers tend to "put off" any major purchases because all around them, prices are falling. "If I just wait," they say, "I can buy this thing cheaper".

As consumers put off purchases, supplies mount, which upsets the demand-supply curve and causes prices to fall even more. This restarts the cycle and prices eventually drop again.

Low inflation rates concern the Federal Reserve.

Especially because the group eased the throttle on its main inflation-inducing tool -- the Fed Funds Rate -- at the end of 2015; and, because energy costs are as low as they've been in a decade.

There are fewer forces to push inflation rates up today which makes disinflation a distinct possibility. If you're shopping for mortgage rates, this will lower your overall cost of homeownership.

What Are Today's Mortgage Rates?

Today's mortgage rates are near their lowest levels of the year. Low inflation rates and a softening U.S. economy have helped to boost affordability, and have opened refinance opportunities nationwide.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

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