Rates, Rates, Rates!

I’m sure some people are running up and down the halls of their workplace or home yelling rates, rates, rates! It seems to me making everybody crazy right now especially with what we have going on in the United states. I’d like to peel that back and give you a ground level view of what causes interest rates for home loans to rise and to fall. Hopefully it will give you a clear understanding of the basics and will help you to look at things from a logical standpoint to make the best decision for you.

If you’re trying to time the market, good luck it’ll never happen. Is there a bad time to buy a home or sell a home? That all depends on your situation. There are some people who are moving due to financial hardship, divorce or a job transfer that have no choice in the matter. buyers want to time the market to get it when it’s at its lowest and sellers want to time it when it’s at its highest. But is it really that simple?

let’s take what’s going on right now in November of 2022 as an example. Rates have risen to over 7% but have now dropped back below 7% recently. Inventory is still low. A lot of the multiple offers have disappeared but not completely. So if the huge frenzy is over why are there not more buyers right now? It can’t simply be because of the interest rate. Some people are waiting for the interest rates to drop so they can purchase a home. But the other side of that is the moment that the rates come down, a lot of buyers who have left the market will jump back in again which will drive the price back up. I still believe in that saying from my last week’s blog that you marry the home and date the interest rate. Meaning purchase the home that you love and know at some point you will refinance to get a lower house payment when things go in a positive direction.

Every time the Fed raises the prime interest rate, everybody freaks out. But the prime rate is not tied to the mortgage rate. Mortgage rates follow bonds. Think of it this way, inflation is what will drive up interest rates for home mortgages. When the Fed raises the prime interest rate by.75% or 75 basis points. They’re trying to get inflation under control. When inflation starts to stabilize and lower, the interest rates we’ll start to drop. So if you’re in a situation where you’re looking to buy or sell a home with high inflation, you want to hear that the Fed is going to raise the prime rate.

For those of you that don’t know, prime rate is tied to the interest rate on a car loan, the interest that you pay on your credit cards and other types of debt. Instead of believing everything that you read including this blog. I encourage each and everyone of you to call a mortgage broker and speak to them directly. Verify the information I just shared with you and ask them to explain where rates are currently and what they think will happen in the next three to six months. That way you’re not just relying on things you see and hear on the Internet but you’re actually talking to mortgage professionals who work in this field every single day.

Many economists believe that we have a 10 year shortage of homes. They feel that we could build homes 24 hours a day seven days a week and it would take almost 10 years to get to the point where we now have serviced all of the people who are looking to purchase a home. So no matter what happens with the interest rate in the next year, we still have a housing shortage. That’s why I don’t believe that the value of the home will drop a huge amount. As long as there is a home shortage there’s always going to be demand.