The spring season is upon us, and with it comes a few things we can count on: the mud, the sun coming up as we get out of bed, and the sudden itch to look for a new house. When it comes to someone’s ability to purchase a home, the main factor often revolves around the mortgage payment. Usually, that payment is going to be dependent upon the current interest rates that are available in the market.
Back in September of 2016, my wife and I listed our Flushing home for sale and our realtor found a cash purchaser at our asking price. In anticipation of needing to move, we locked in on a mortgage at a 3.6% interest rate. Historically, rates have not been this low since the mid-1960s. We were thrilled and looked forward to a new home. Due to various issues, the sale of our house fell through and we felt God was telling us to stay put. Fast forward to January 2017. Our realtor approached us, though our house was not on the market, asking if we were still interested in selling, because she had a qualified offer. After praying about it, we decided to make the leap of faith and move forward with the sale. With all other things being equal, and using the same mortgage companies, the new rate had jumped 27% higher to a 4.6% interest rate! What a difference! What had changed so drastically in roughly four months? All signs pointed to an expected resurgence of economic growth in the United States.
I believe this overall market sentiment is due to the election of a president with a business background. Putting all differences aside, the expectation of most is that President Trump’s focus is going to be the economy. In my opinion, we haven’t really had a president focus on the economy since Bill Clinton. President Bush was playing whack-a-mole with terrorist attacks and a war in the Middle East. President Obama inherited a depression and did his best to turn it into a recession to make sure the millions who lost their jobs with the housing crisis were fed and cared for. I believe interest rates have spiked recently in anticipation of economic expansion. Inflation is setting in, as well, as many states have recently increased their minimum wage. Michigan’s minimum wage is now at $9.05/hour. Perhaps these subtle changes, along with investors selling their bond holdings, have caused interest rate changes.
I think the age of the 3.5% mortgage could be behind us and we could now be on a path to a long-term cycle of interest rate increases. This could potentially be a good thing for America as we begin to normalize our Federal Policy that has been fairly contorted since the housing crisis. This could also mean that home buyers may be in for a little bit of sticker shock when they hear what the expected mortgage payments will be based on new interest rates. Hopefully, the economy does start to move at a rapid pace and people are put back to work. If that should happen, I would assume that interest rates will continue to move steadily higher.
If you happen to be one of those people who are looking to make a housing change this spring, I would contact a realtor or mortgage banker and get their opinions on your specific situation.
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