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Tuesday, February 27, 2018

What can cause mortgage rates to go up?

Federal Reserve Chairman Jerome Powell testified in front of the House Financial Service Committee on the State of the U.S economy.  Wages have increased 2.9% year over year in January (after a dismal 2.5% average in 2017) and as wage growth continues, businesses will need to fund this growth with higher product prices.  This will contribute to inflation.  Inflation hurts bond values and when bond prices go down, rates go up. 

The Mortgage Bankers Association (MBA) continues to predict that there will be four short term borrowing rate increases this year (what the government charges banks for overnight loans).  These rate changes will create ongoing volatility in mortgage rates.  The MBA has also predicted an average rate of 4.80% in the 4th quarter, 2018.

According to S&P Case Shiller, December saw home prices increasing and February consumer confidence hit the highest level since November, 2000.  Wage increases, higher product prices, home value increases and consumer confidence at a multi year high predict increasing mortgage rates. 

Here's where all of this information took me this morning:

This morning, I calculated an increase of $47/mo in house payment at a future 4.8% interest rate versus what we have available today.  My client this morning was wondering if buying now or waiting until the end of the year made the most sense considering they are locked into a rental contract until year end? 
Mortgages with Marty in Utah!
Something else to consider would be home value appreciation and a higher sales price of $15,600 (considering a 6% home value appreciation per year).

With higher rates and higher sales prices at year end, my client is now wondering if it makes sense to break their lease early and purchase now?

If you would like to review your options to purchase or refinance, give me a call at 801-540-5108. 

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