Temperatures Are Rising and So Are Mortgage Interest Rates

NEWS FLASH: The average 30-year home mortgage rate spiked yesterday (Thursday, May 30, 2013) to 4 percent, from 3.75 percent last week.

OK, that bears repeating: The average 30-year home mortgage rate spiked yesterday to 4 percent, from 3.75 percent last week.

So … do we interpret this as a sign of:

A.) A strengthening U.S. economy

B.) Good news for mortgage lenders

C.) A warning sign for home buyers

D.) A call to action for home sellers

E.) Or, all of the above?

If you guessed “E,” you can slap yourself on the back because you agree with most U.S. economists and financial analysts. A burgeoning American economy (evidenced most recently by growing consumer spending, lower unemployment figures and a bump up in incomes) is a great thing for us all. That light at the end of the tunnel we’ve been waiting for is here and now.

And, while it’s natural to expect spikes in interest rates, “we’re less likely to see historically low interest rates anytime in the foreseeable future,” according to Cory Miller, Home Mortgage Consultant at Wells Fargo. “Spikes in the market are to be expected throughout the year but a more sustained rise in loan rates in the coming months is inevitable.”

In terms of the real estate market, what’s a home seller or home buyer to do then? Here’s my best advice for both groups:

Mr. & Mrs. Home Seller, It’s Still Your Market: Home buyers have been frustrated in their efforts to buy a home due to lack of inventory. There are too many buyers and a woefully low number of condos and single-family homes. If you’re even remotely thinking of putting your home on the market in the coming months, don’t wait. Get a home pricing evaluation from a Realtor (it’s free) and crunch those numbers NOW. If it makes sense to take advantage of the current seller’s market, then hire a Realtor, put your home on the market and be prepared to deal with multiple offers.

John & Jane Home Buyer, Your Purchasing Power Ain’t What it Used to Be: Here’s what I mean. The average home buyer with decent credit (say around 740) putting down 5% on the purchase of a $400,o00 single-family home would now pay just above $2,000 a month for a mortgage at an interest rate of 4% (not including taxes and insurance). This past January when rates were more like 3.375%, your mortgage payment could have been approx. $1,892. Your “purchasing power” would have been stronger. If you’re thinking of buying a home in the coming months, read my advice to home sellers (“Don’t wait!”) Hire a Buyer’s Agent to help you navigate the choppy waters of home buying and be patient. There’s a home out there just waiting for you.

Bottom line?

The American economy is inextricably linked to the U.S. housing market. As the economy booms, the housing market adjusts to keep up with the demand. The wise investor does not time the market; they simply buy and/or sell when the need is present and the time is right for them.