Posts Tagged home affordability
Freddie Mac’s December U.S. Economic & Housing Market Outlook reported in June on how rising rates would affect home affordability throughout the U.S. Freddie Mac determined that the answer is “it depends”. Mostly it depends on what area of the country you live in and how quickly the home prices are rising in that area.
Freddie Mac determined that in most markets rates would have to rise to 7% before home became unaffordable to the typical family. What we do see though is rising rates affects how much home a buyer qualifies for, and as home prices and rates increase, the quality of home the typical buyer can afford will decrease.
Right now at least 50% of Utah households would qualify for mortgage loan of $248,000, which with 5% down on a Conventional loan would equate to roughly a $261,000 purchase price.
If interest rates rise 0.5% the purchase price drops to $247,000. If they rise a full percent above the current level home purchase power drops to $236,0000.
The good news is that right now this still puts most homes in Salt Lake County within the budget of 50% of Utah households. I think what we are going to see if rates continue to rise is a stabilizing of home prices, or at least not the double-digit gains of the past couple of years. With affordability going down, offering prices will be lower and thus home values in general will not continue to increase at their current rate.
Stocks down. Rates down. What’s going on here?
After a bad day on Wall Street yesterday rates fell dramatically this morning only to have three upward adjustments as the day went on? Why, a few reasons today:
3. Fed Funds Rate
Mortgage rates are based on bonds. When stocks are not attractive, investors move their money to bonds which pay less, but are more secure. This drives mortgage bond yields up and thus rates down. So when Wall Street had it’s worst stocks day since September of 2001 yesterday, bonds got a big boost and rates dropped almost a full point this morning to around 5.5% for a 30-year fixed or an FHA 30-year fixed. The day began with stocks falling 1.5% and as the day went on and the Fed decided not to cut the Funds Rate again it gave investors confidence in the course of the Fed and the markets and stocks rallied to a 2.5% increase. Hence, stocks got better, bonds got worse and so did mortgage rates.
How much worse? Well still better than they were last week. A 30-year fixed loan is still pricing around 6.00%, which is better than 6.375% to 6.50% it was last week. If I had to guess I’d say that rates are going to continue to bounce between 5.75% and 6.375% for the foreseeable future. The last two days could have just been a momentary blip, an anomaly like we had last February when rates fell dramatically for about half a day.
Why didn’t the Fed cut the Funds Rate? Because they have injected $120 billion into the banking system in the past two days. It would seem the Fed wants to make borrowing more accessible rather than simply cheaper. This is probably a good long term move to stave-off inflation increases because more money will be available to more people which will help fuel the economy rather than simply make a limited amount cheaper to less people.
The upshot though is that it’s still a good time to buy because rates are still low. Sure, maybe not the 4.50% low of a few years back, but those days are not sure to return for quite awhile, if ever. Rates are still at historical lows, though, and home prices are stabilizing in Salt Lake City and throughout Utah, which will make homes available to more potential buyers. I have a payment calculator available on my website as well as an affordability calculator. Fool around on them to figure-out how much home can be afforded as well as what the payments would be.
Also, with rates where they are at now, it might be a good time to look into refinancing an 80/15 or 80/20 loan into a single loan. A better rate might be in place on a first, but the second is higher and the blended rate of the two is the one you want to beat to save money. There is also a blended rate calculator on my website to figure-out what the true rate is on a combo 80/10, 80/15 or 80/20 loan.
Call me if you have any questions. Also, I appreciate and referrals you may provide since my business is almost fully referral-based.