Your home: Only two months left until the rate hike

With the Federal Open Market Committee scheduled to meet on Sept. 16 and 17, they seem to be poised to announce an increase in the federal funds rate. This would be the first interest rate increase by the Fed in nine years. An increase has been a long time coming. It feels like the real estate community has been anticipating an increase for years now. Not because of any facts that support an increase. Simply because we all could not believe that rates could stay so low for so long. But they have. Until now.

At the June meeting, the committee confirmed that they are on track to raise rates based on the improving economy. Janet Yellen, the Federal Reserve Chair, is maintaining her mysterious position as it pertains to when exactly rates will increase. “It would be wrong if we were to provide you a road map,” Yellen said following the June meeting.

I was curious what the word on the street was in the lending world, so I had a conversation with Mike Miles of Fountain Mortgage here in Prairie Village. I asked Mike if his sources were telling him that rates are going up this year. He said, “It is well known that the Fed will raise rates in 2015. Once the increase is announced, the bump in rates that we feel could be smaller or larger depending upon how individuals and institutions respond to the news and to what degree they react.”

We discussed Greece and other international turmoil and if he felt that could delay an increase in rates. “I would choose to base my decisions on information from domestic sources. Waiting to see if economic turmoil overseas could have an effect on a rate increase is a huge risk.”

So let’s back into this for a minute. If rates are going to increase in mid-September and here it is mid-July, then we only have two more months of historically low interest rates. That is not much time. With the average real estate transaction taking approximately 45 days from contract to closing day, there is not much time to find a home first.

And what if you need to sell your current home first? You have even less time. If you need to sell before you buy, you are on borrowed time at this point. Not only might you have to pay a higher interest rate when you turn around and purchase a home, you may also have the size of your buyer pool affected by an increase in interest rates. Historically when rates increase, it can cause a stall in the market. Some buyers, who are currently renting, may choose to stay in their rental as opposed to purchasing a home. This stall cannot only have an affect on the size of your buyer pool, it can also cause downward pressure on pricing. Talk about a one-two punch. Not only might you have to pay a higher interest rate on your purchase, but you may have to sell for less as well.

When asked what interest rates might look like in the foreseeable future, Miles had this to share from the Mortgage Bankers Association. Here is their forecast for the rest of 2015 and the first half of 2016.

30 year fixed mortgages
Q3 in 2015 = 4.1%
Q4 in 2015 = 4.4%
Q1 in 2016 = 4.6%
Q2 in 2016 = 4.8%

The moral of the story is that whether you are considering a home purchase in the near future or perhaps a refinance, now is the time to act. Based on the MBA’s predictions, almost 10 percent of your buying power could be eroded by the second quarter of 2016. Don’t wait. Act now.

Your Home: Is it still a good time to consider refinancing in NEJC?

Question: Should I refinance my home? How much could I save?

When interest rates dropped so low, and the housing market was declining, refinances were the hot topic. Now that the market is in a state of recovery, it seems that “refis” have lost their spot in the limelight.

But now is still a great time to refi — for most homeowners. I say most because there are a few general rules to follow if you are considering a refi.

Most lenders would tell you that you need to plan to stay in your home for at least two more years if you are considering a refi. There are closing costs that a homeowner must pay when refinancing, so it is important to make sure that you will recapture the cost and then see some savings before making the investment.

Also, if you purchased in 2005 or 2006 before the market declined, there is a chance that the market value for your home today is not as much as you paid for it back then. That could stand in your way when it comes to refinancing. Just like when you purchase a home, the lending institution will perform an appraisal on your home to insure that it is worth the refinanced amount. If you did purchase around that time, you should probably first contact a Realtor to perform a preliminary market analysis for your home. He or she should be able to give you an idea as to whether a refi might be an option or not.

Now, the up side. A lower interest rate can make a huge impact in your payment and overall equity position. For example, let’s say that you have a mortgage on your home of $240,000 and your current interest rate is 5.25 percent. If you were to refinance today into a 30 year conventional loan, you would save approximately $25,000 in the first eight years between interest savings and equity improvement. Yes – I said $25,000! That is not to mention what would happen to that $25,000 it it were then invested elsewhere: a 529 plan for your kids college education, down payment for an investment property, etc…

If you are considering a refinance, I would like to make an endorsement. Jim Yarrington with Peoples Bank has been a long time partner of ours. He handled our refinance on our first home, and the home purchase loan on our current home. Not to mention that our clients love him. If you would like to make an application for a refinance, just got to ApplywithJim.com. It is a very user-friendly site and I am confident that Jim can provide you with the best options for you and your family.

Your Home: What’s behind the early hot housing market? 2 Factors

Why is the housing market “heating up” so early this year?

Boy, this could be a very long answer. However, I am going to stick to two main contributing factors: low inventory and affordability.

Low inventory, in this case, means a lesser number of homes for sale than there are buyers looking to purchase. This is exactly what many homeowners have been waiting for for six years now. It appears we have gone from a buyer’s market (high inventory) straight to a seller’s market (low inventory).

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Please know that each subdivision or area of town can be its own micro-market. Thus, one area of town might be in a slight seller’s market while another might be in an extreme seller’s market with almost no inventory available. You might ask, “What constitutes low inventory?” For me, it would be anytime you have less than three months of inventory. An example: Let’s say four bedroom Cape Cods in Prairie Village are selling at a rate of two per month and there are currently six for sale. If nothing else comes on the market, then in three months they would all be sold.

For the month of January, most of northeast Johnson County had between five and six months of inventory available. And that inventory is dropping. Inventory in the KC metro is down 22 percent from January 2012.

Onto the next factor: affordability. Affordability is my favorite topic right now. I find that the more friends and clients I talk to about it, the more I realize I need to do a better job of getting the message out to them that houses have almost never been more affordable.

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At the end of 2012, it took only 12.9 percent of the median family income to cover the median family house payment. That is in large part due to historically low interest rates coupled with lower home prices. As a reference point, in 2005 (just eight years ago), that number was 23.2 percent. Almost double what it is today. From 1970 to today, the long-term average has been 21.6 percent.

So what does this mean to you? Have you ever heard the term “house poor?” That is when you have a great new home to live in, yet no money to improve it or do anything else fun like vacations, dining out, gifts for those that you care about, etc … In the early 80s when it took more than 36 percent of your income to pay your mortgage, it was very easy to be “house poor.” So comparatively speaking, with affordability at 12.9 percent, our clients are finding that they have more funds available for home improvement projects and to have a fun life as well.

Picture Credit: KW Realty International