With stock markets hitting record highs, and bond yields still hovering at the bottom, the Federal Reserve is tapering its bond purchase programs. That’s an indication that those lucrative mortgage rates that you are now seeing in the market may soon be a thing of the past.
According to Mortgage Bankers Association, which tracks 30-year and 15- year mortgage rates on a weekly basis, rates for the 30-year loans were at 4.16 percent for the week ending May 31. But, they may not stay that low for long.
Mortgage giant Freddie Mac predicts interest rates will climb to 5.3 percent by the 2015 spring buying season. That means, a borrower who waits until next year will pay $136 more per month on a $250,000 loan at 4.4 percent. The additional interest over the life of the loan would add up to $49,090.
“The sooner the consumer locks into the lower rate, the better,” says Lawrence Yun, chief economist for National Association of Realtors. “We don’t know what date precisely, but interest rates will creep up.”
In many markets, borrowers anticipating a rate hike already are quitting the waiting game. There has been a frenzy of buying activity in the Philadelphia market, says Ricardo, Silva, a Philadelphia-based Realtor.
“We have a stronger market right now with low inventory and lots of buyers,” Silva says. “The market is really picking up this year.”
In Indianapolis, too, the trend is similar, according to Realtor Beenu Sikand. Buyers are having a harder time negotiating, while sellers are smiling their way to their banks. “Sellers are getting multiple cash offers on homes,” she says. “It’s just amazing.”
Buyers also are taking advantage of the low interest rates, Sikand adds. With low inventory levels, many buyers are taking the plunge the moment they find their dream home. And those that can afford are not worrying about the price tags. But not everyone is that lucky.
Nationally, asking prices jumped 8 percent in May compared to a year ago. Prices in Las Vegas and the California cities of Sacramento and Oakland rose about 15 percent. The sharp increases have made some markets unaffordable for the average buyer.
According to a recent RealtyTrac analysis, of 1,567 counties nationwide, 315 hit a new 10-year peak in home prices. Some of the counties that experienced major price hikes are Kings County in New York, and Oklahoma County in Oklahoma. Investors, low inventory and an increased demand are triggering price hikes.
“It makes me think that it’s not the best time to buy in those markets,” says Daren Blomquist, vice president at Realty- Trac.
Blomquist said buyers should take into account factors besides interest rates such as their employment situation, family life before making the most important investment of their lifetime.
But, if all those factors are stable, Blomquist says don’t wait.
“If you are in a market where you can afford to buy, the interest rate now is truly amazing in the context of the housing market,” he says. “I wouldn’t wait for the price bubble to pop or rates to go down.”
Here are a few things to keep in mind before you go house hunting:
Get preapproved
It’s a competitive market, so be sure you have a preapproved loan before you even start looking at homes, Blomquist says. The market is hounded by cash buyers, who are often more desirable for sellers. If you are preapproved, you have a better chance of nabbing that home and your offer won’t fall through because of a lack of financing.
Shop around for a loan
Get competitive bids from different mortgage companies and shop around for rates. Find the best offer that’s out there.
Embrace the stress
Buying a home and applying for mortgage is stressful. Anticipate that, and embrace the process. “It’s not going to be a cakewalk, so go in with the expectation that it will be tough,” Blomquist says.
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