What’s Going On With Interest Rates?

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What’s Going On With Interest Rates?

If you’ve been following real estate or mortgage news lately, you’ve likely seen that mortgage rates are up to their highest level in the last 8 years and are now approaching 5% for 30 year fixed rate loans. What’s going on? What is causing the rapid rise in long term fixed mortgage rates that we’ve seen consistently in 2018, and what is the outlook for the future?

 

Although there are many factors that have contributed to the rise in mortgage rates this year, the short answer is that the largest buyer of mortgage-backed securities (MBS) in the market, the Federal Reserve Bank, has drastically been cutting its purchases. The Fed has massive amounts of MBS’s in their portfolio – approximately $1.75 trillion. In addition, other large purchasers like the European Central Bank recently announced a 50% cut in the amount of MBS’s they will be buying. With these huge institutional buyers stepping back from the purchase market, it means less demand for bonds. Lower demand for bonds causes their price to drop, which then results in the “yield” or the mortgage rate to rise.

 

Because we have experienced such historic lows in the mortgage rates over the past 7-8 years, this has come as a shock to many, but as you can see from the chart above, historically rates are still excellent. If you look at the average 30 year mortgage rates going back over the last 50 years or so, the vast majority of those years rates were well above where we are now. Many homes were bought, sold and financed over these years and families built equity owning real estate. Any time there is a rapid upward movement in rates, there can be “sticker shock” for a while, but this chart helps give some historical perspective.

 

There is continued upward pressure in rates, and some industry experts are predicting that mortgage rates could continue to rise this year and into 2019. With the Central Texas area experiencing strong economic and population growth, real estate prices and values continue to rise. Waiting to buy could cost you more money, both in price and in mortgage rate.

 

Now would be a great time to buy a primary, vacation or rental home. If you or someone you know has been thinking about buying a house but putting it off, please let me know. It may be that waiting to save more money to put down or for another reason could result in paying higher rates and prices in the future. Please give me a call or email and we can discuss personalized options so you can make the best decisions for your family.

Thanks!
Michael