Summary: Mortgage rates dipped slightly last week. But we shouldn’t misread the tea leaves. Broader trends and conditions suggest that the best interest rates may be in the rear-view mirror. Home buyers should pay close attention to these trends.
At the start of 2013, the average mortgage rate for a 30-year fixed home loan was 3.34%. The lowest average in history (3.31%) occurred just weeks earlier, in November 2012. Since then, the benchmark rate has risen to an annual high of 3.63%, and is now hovering in the 3.5% range. So it seems that the best mortgage rates are behind us.
Higher Mortgage Rates By Year’s End?
Analysts do not expect the benchmark rate to drop much lower than it is right now. In fact, Freddie Mac’s own chief economist published a forecast earlier this year, predicting a gradual rise through the end of 2013. In his view, we could see rates upward of 3.75% by the end of this year. Personally, I would not be surprised if they rose above that.
Home buyers should pay close attention to this and other trends within the housing market. If there were a textbook for home buyers that defined a ‘good time to buy,’ it would probably look a lot like the present. Housing affordability is still high in most parts of the country (SoCal and NYC aside). Home prices have rebounded. And mortgage rates are still hovering near historic lows. What else can you ask for?
But these are dynamic, ever-changing variables. And right now, their individual movements suggest that this could truly be the best time to buy a house.
House Values on the Rise
Home prices are rising in much of the country. According to the latest Case-Shiller Home Price Index, January marked the biggest year-over-year gain in home values since before the housing crisis. “The two headline composites posted their highest year-over-year increases since summer 2006,” said David Blitzer, Chairman of the Index Committee. Rising prices have an inverse effect on housing affordability, with all other things being equal.
At the same time, mortgage rates are expected to rise slightly through the end of 2013. The Federal Reserve has been purchasing mortgage-backed securities (MBS) to the tune of $40 billion per month, putting downward pressure on mortgage rates. Indeed, the Fed’s actions have helped keep loan rates near historic lows for the last few months.
But the Fed’s actions won’t last forever. As soon as they detect a hint of inflation, the Federal Open Market Committee will likely vote to scale back on MBS purchases, if not end them outright. This will remove the artificial “cap” that has held mortgage rates so low in recent months.
In most U.S. cities, home buyers are now in a situation where waiting to buy also means paying more. Home loans will eventually cost more, if mortgage rates do indeed rise. House prices are an even bigger concern, given the rate at which they are rising. Delaying a purchase until the end of 2013, or the start of 2014, could add thousands of dollars to the price tag. Just look at the far-right column in the table above.
Disclaimer: This story includes predictions and projections for interest rates, home values, and other economic conditions. These statements reflect the personal opinions of the sources who provided them. We make no promises, claims or assertions about future conditions within the housing market.