About six months ago and for the first time in seven years, interest rates were above 5 percent and it didn’t look like it would change.
House hunters were discouraged by rising prices, few housing choices, bidding wars and with the high interest rates as one more obstacle more or less called it quits which caused housing sales to plummet everywhere including in the hottest markets in the US.
Federal Reserve Chairman Jerome Powell however promised in December a reprieve on further interest rate hikes and on Wednesday, March 20, 2019 predicted rates which are currently at 4.5 percent would not budge for the rest of the year.
This forecast for this year’s home buying market means more buying power for buyers and less frenzy trying to buy a home before the interest rates rising before purchase like it had been in 2018.
Lower interest rates and the prediction of rates staying low means buyers won’t have to worry of being priced out of a purchase on the day they sit down to sign for a mortgage.
When you couple lower interest rates with rising wages it helps making the purchase of a home affordable too. And makes the total interest savings in the long run more impressive.
As far as sellers, it provides the opportunity to just sell or to sell and move up into a higher priced housing market, but the freeing up of lower priced homes is desperately needed especially for first time home buyers. According to Mike Fratantoni, chief economist of the Mortgage Bankers Association, because of more move-up buyers, the average mortgage balance of purchases has reached record levels.
Fratantonisays that its like a musical chairs game. “You need someone in the higher end to move and it works its way down the ladder, eventually opening up an entry-level home.”
Keeping interest rates low also encourages renters to purchase a first time entry level home.
However, Mark Fleming, chief economist at First American, sees things differently. He doesn’t think the interest rates are low enough to push homeowners to sell to move-up because their interest rate they have is lower than the current rate. He says the interest rate would have to be in the high 3 percent range to move existing homeowners to sell and move-up.
Fleming says that there isn’t enough inventory right now to satisfy the demand for first time home buyers but still expects them to make a come back appearance on the market scene since the interest rates will keep at a moderate level for the rest of the year.