The financial crisis of 2008 was something of a “double-edged sword” both for consumers and for the economy as a whole. On one side, we did see worsening economic data, especially in areas like the unemployment rate. But on the positive side, interest rates were reduced to near-zero levels. This helped the housing market recover strongly and remove the glut of foreclosures that was sending property values lower in many distressed neighborhoods. But the Federal Reserve policy stance of 0% interest rates certainly cannot last forever, and many market analysts expect major changes here in the coming quarters.
Changes in the National Average
Currently, the US national average for conventional and fixed-rate 30-year mortgages is 3.93%, which is actually lower than the 4.42% that was seen during the previous year. From an historical perspective, these are still great deals for those looking to purchase a new home. But if we do start to see material changes in Fed policy, mortgage rates will almost certainly rise in tandem and many new potential homeowners could be left out in the cold.
So, the real question is this: When will the Federal Reserve end its 0% interest rate policy, and how high will they raise rates? At this stage, the true answer is still anybody’s guess. But when we look at the consensus opinion of analysts in the bond market, some possibly troubling trends have started to emerge. With many analysts now forecasting that interest rates could be as high as 5% by the end of the year, it seems fair to say that the days of sub-4% mortgage rates are coming to an end.
Not Too Late to Buy
Given the total scenario here for the Fed and the US economy as a whole, it makes sense that those looking to buy a home right now have approached the market with some degree of urgency. Mortgage rates will almost certainly be higher at the end of the year than they are now, so it is clear that these fears are somewhat justified. But it should be remembered that there is still time to capitalize on the low-interest rate environment that the Fed put in place in order to cushion the economy from any further slowdowns.
Looking at home prices across the country, significant progress has been made over the last five years. But average home values are still more than 15% below the peaks that were seen in 2006, so there is still room to run higher. This should help to ease some of the fears new potential home buyers are experiencing in the new economic environment. So, if you are looking to buy a new home, it is a good idea to stay focused and explore your options because if you want until next year, your chosen home will probably cost more, and the cost of your mortgage will definitely be higher than it is now. Keep all these factors in mind as you navigate the new climate in home mortgages.