The housing sector decline has left prospective buyers in a perpetual state of uncertainty. Factors beyond their control continue to make the acquisition of a home more implausible each day. Market indicators have therefore been rendered irrelevant in the eyes of house hunters, as they appear to change on a daily basis. However, perhaps even more concerning, are the prospects of increasingly high mortgage rates. Despite a recent reduction, rates are pushing the boundaries of 5% as 2013 draws to an end. Indicators are beginning to point to now, as the time to purchase a home.
A myriad of potential scenarios have more than likely played out in the heads of prospective buyers, each of which is more disturbing than the latter. However, those intent to purchase a home in the near future are advised to do so sooner rather than later. Subsequently, there are several economic issues that suggest now is the best time to purchase a home. Inflation, consumer credit, rising home prices and the threat of interest rates that could surge to 6% in 2014 are just a few.
According to Freddie Mac’s weekly mortgage rate survey, rates stand at 4.20 percent. This rate is in lieu of a recent decline that occurred in previous weeks. Analysts familiar with the market predict that an imminent jump will result in mortgage rates as high as 4.50% by the end of 2013. Which raises this question for potential homebuyers: Should you jump off the fence now, with rates still fairly reasonable, or do you wait and risk having to deal with mortgage rates as high as 5.00% or 6.00% in 6-to-12 months?
The following factors should be taken into consideration:
Rates Are Expected to Rise Soon
As previously mentioned, rates have been on the rise and there are no signs of them slowing down. Ambitious predictions hint at rates cracking 6% as early as next year. “Most people agree it is only a matter of time before rates hit 5%,” said Peter Grabel, a mortgage loan originator at Luxury Mortgage Corp.in Stamford, Conn. “The housing market has clearly turned the corner in most areas. I think a year from now people will look back and realize that this was a great buying opportunity.”
The Federal Reserve is Expected to Ease on the Purchasing of Securities
For the majority of the past five years, the Federal Reserve has made it a priority to purchase securities in the U.S. mortgage market, a process known as “tapering.” As a result, interest rates remained at record-low levels. However, a recent report suggests that the Federal Reserve intends to ease of the purchasing of securities, thus facilitating increased interest rates.
“Rates in the 3% range are gone forever because the Fed will soon be pulling out of their mortgage backed securities purchasing program,” said Tim Lucas, editor-in-chief of the mortgage website MyMortgageInsider.com. “When the Fed stops buying, demand for these securities will fall dramatically, and rates will jump back up to typical levels. Once the unemployment rate nears 6.5%, the Fed could stop buying these securities, sending rates higher. We’re at 7.3% unemployment now, with positive economic signs at every turn.”
Home Values Continue To Rise
Assuming you are familiar with the current trajectory of the market, you are aware that house appreciation rates have skyrocketed. Following a period of economic recovery, prices have gone from record-lows to where they were at the start of the bubble. Experts predict that prices will continue to rise for the foreseeable future. According to CoreLogic, a data analysis firm, U.S. home prices have risen 12.4% from August 2012 to August 2013.
Underrating The Fall Buying Season
Prospective buyers are encouraged to participate in the market during the fall season, as there is substantially less competition in the residential real estate market. More homebuyers are competing for houses in the summer months. ”Next to spring, fall can be the best season to buy a home, although this year the economic climate is different from recent years,” said J.D. Crowe, senior vice president at Georgia-based Southeast Mortgage. With less competition, buyers may be able to purchase a home at a more affordable price.