The overall landscape of the national housing market remains positive but here in New Orleans, the market’s booming and inventory is movin’ fast! Mortgage interest rates are hovering just below 3% for 5/1 ARMs (adjustable rate mortgages) and you can still get a 30 year conventional loan for less than 4% with stellar credit and a good debt-to-income ratio. These rates are incredibly low, and if you’re thinking of buying a home this year, it’s best to get that rate locked in sooner than later.
The Fed has revised their plans for the upcoming year, changing their initial plan of hiking the rates up four times this year to twice. By the end of 2016, rates could raise by 0.9 points and another 2% by the end of 2017.
What does this mean? Well, a general rule of thumb is that for every 1% increase in interest, the consumer’s buying power decreases by 10%. So if you could afford a $500,000 home today, you may only be able to qualify for a $450,000 home by the beginning of 2017. This correlation is not an exact science, but it shows you the potential implications of what an increase in rates can do to your purchasing power.
Rates first moved below the 4% mark the week of Nov. 10, 2011, according to Freddie Mac, thanks to intervention by the Federal Reserve. Since then, rates have fluttered up and down marginally, but home buyers have grown accustomed to these artificially low rates. Don’t be complacent though, the Fed has indicated it will not continue to hold down interest rates for much longer (we’ve heard that before).
Indeed, experts are expecting a rate increase this summer, but it’s anybody’s guess as to when that will happen. Contact us today for a list of local preferred lenders to help you determine if now is the right time to buy your next home.