02/01/2018
What’s going on:
By now you’ve heard that economists agreed 2018 was going to yield an increase in mortgage interest rates. What may be surprising is how quickly that increase has come.
The Tax Reform Bill, while causing increased optimism in the stock market, wreaked some havoc on the more conservative investment vehicles like bonds and mortgage backed securities. We can almost pinpoint to the business day the bill was passed, as a turning point in rates ticking up. Today’s Fed commentary, further impacted rates including meeting notes that we should expect to see continued inflation and economic growth over the next 12 months.
From December 19th (the day the Tax Reform Bill passed) through today, rates on most mortgage products have risen by about one-half of a percent. On a $500,000 30-year loan, that’s a monthly payment increase of about $150/month. Not only is that a payment increase, it also has an impact on consumers’ maximum affordability. $100/month on a mortgage payment translates to about $20,000 in sales price. If a consumers’ payment increases $150/month, that translates into about $30K in reduced buying power.
Why there’s hope:
Rates are still low. I won’t say they’re historically low, mostly because that’s such an overused phrase. But I will say, they are low. The chart below from the St. Louis Federal Reserve, shows 30 year fixed rates from about 1970 through today. We can see that the overall historical average is between 6.0% and 7.0%. You can also see we’ve been spoiled for the past 10 years (if not even the past 20 years). Consumers are used to really low rates and it could take some adjustment to understand rates are still low, even if they shift to being in the 5.0% range.
Price appreciation is still far outpacing any interest rate increase we’ve seen, or even expect to see, these next few years.
According to the Northwest Multiple Listing Service (NWMLS) in their January press release, King County registered the sharpest increases at nearly 16 percent. In the entire MLS, there was an 11% increase. If we take that anticipated 5.0% mortgage interest rate, up against that 11-16% appreciation, it’s fantastic. Condo prices surged 28% in King County. Whether someone owes $100K on a $500K home, or $400K on the same home, the house itself is appreciating at the same rate. Most brokers interviewed by the MLS for their January press release, all said the same thing: they expect momentum and appreciation to continue despite uncertainty about interest rates.
To read the complete release, use this link: http://www.northwestmls.com/index.cfm?/News--Information/page/Latest-Press-Release
