There few things in the purchasing of a home that will have as significant an impact as the changing of interest rates over time. This can lead to a broad question of when to buy your home and what type of financing to secure. It is best to speak with your financial advisor and mortgage broker before making any large purchases but here are a few ideas on how the big picture is moving over the last few months.
With unsettled overseas financial matters, caused in part by the administration’s import tariffs on products such as steel and aluminum, have caused investors to look for safe haven investments such as mortgage-based securities. This is a fear based reduction in interest rates as demand for these securities increases but if confidence in traditional currencies and trade returns interest rates may return to their naturally higher rate as they are currently at an artificial four-month low.
Another consideration is a slowdown in the previously-owned home market. This slowdown is coming at the tail end of 77 straight months of increases home prices according to the National Association of Realtors. When combined with a steadily rising interest rate this is reducing the pool of available buyers which in turn puts pressure on the lending market to keep rates low while home prices stay inflated.
Looking further at the effects of recent trade policies, increases in tariffs will increase the cost of production for domestic products and imported products. This increase in consumer goods may be met with inflation which in turn would be matched with a rise in mortgage interest rates.
There is a chance that rates will lower if the effects on the economy prove to be detrimental and a recession occurs. If this happens then, the pressure will be placed on the Federal Open Market Committee to reduce interest rates to assist the struggling economy in its recovery. Without such an adverse event affecting future rates, it is highly probable that rates will be working to increase their way back to the rates held before the 2007 housing bubble.
What you can do about this. Of course, as a Realtor, my advice is to buy a house, but let’s be a little more conservative when we say this. My opinion is to speak with your financial advisor and let them guide you in selecting the right type of financing or re-financing for your home that will best match these changing interest rates. Good arguments are made for both fixed rates and adjustable rates in periods of rising interest rates, but you can only decide if you have all the information.