Interest Rates
Should I Wait to Buy a Home?

Should I wait to buy a home or should I buy now?
We recently shared that national home prices have increased by 6.7% year-over-year. Over that same time period, interest rates have remained historically low which has allowed many buyers to enter the market. As a seller, you will likely be most concerned about ‘short-term price’ – where home values are headed over the next six months. As a buyer, however, you must not be concerned about price, but instead about the ‘long-term cost’ of the home. The Mortgage Bankers Association (MBA), Freddie Mac, and Fannie Mae all project that mortgage interest rates will increase by this time next year. According to CoreLogic’s most recent Home Price Index Report, home prices will appreciate by 5.2% over the next 12 months.What Does This Mean as a Buyer?
If home prices appreciate by 5.2% over the next twelve months as predicted by CoreLogic, here is a simple demonstration of the impact that an increase in interest rate would have on the mortgage payment of a home selling for approximately $250,000 today:
Bottom Line
If buying a home is in your plan for this year, doing it sooner rather than later could save you thousands of dollars over the terms of your loan.4 Reasons Why Today’s Housing Market is NOT 2006 All Over Again

- Home Prices
- Mortgage Standards
- Mortgage Debt
- Housing Affordability
1. HOME PRICES
There is no doubt that home prices have reached 2006 levels in many markets across the country. However, after more than a decade, home prices should be much higher based on inflation alone. Frank Nothaft is the Chief Economist for CoreLogic (which compiles some of the best data on past, current, and future home prices). Nothaft recently explained:“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2006, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” (emphasis added)
2. MORTGAGE STANDARDS
Some are concerned that banks are once again easing lending standards to a level similar to the one that helped create the last housing bubble. However, there is proof that today’s standards are nowhere near as lenient as they were leading up to the crash. The Urban Institute’s Housing Finance Policy Center issues a Housing Credit Availability Index (HCAI). According to the Urban Institute:“The HCAI measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”The graph below reveals that standards today are much tighter on a borrower’s credit situation and have all but eliminated the riskiest loan products. [caption id="attachment_37442" align="alignnone" width="650"]

3. MORTGAGE DEBT
Back in 2006, many homeowners mistakenly used their homes as ATMs by withdrawing their equity and spending it with no concern for the ramifications. They overloaded themselves with mortgage debt that they couldn’t (or wouldn’t) repay when prices crashed. That is not occurring today. The best indicator of mortgage debt is the Federal Reserve Board’s household Debt Service Ratio for mortgages, which calculates mortgage debt as a percentage of disposable personal income. At the height of the bubble market a decade ago, the ratio stood at 7.21%. That meant over 7% of disposable personal income was being spent on mortgage payments. Today, the ratio stands at 4.48% – the lowest level in 38 years!4. HOUSING AFFORDABILITY
With both house prices and mortgage rates on the rise, there is concern that many buyers may no longer be able to afford a home. However, when we look at the Housing Affordability Index released by the National Association of Realtors, homes are more affordable now than at any other time since 1985 (except for when prices crashed after the bubble popped in 2008). [caption id="attachment_37443" align="alignnone" width="650"]
Bottom Line
After using four key housing metrics to compare today to 2006, we can see that the current market is not anything like the bubble market.“Short of a war or stock market crash…”
[caption id="" align="alignnone" width="648"]
Home Prices[/caption] This month, Arch Mortgage Insurance released their spring Housing and Mortgage Market Review. The report explained that an increase in mortgage rates and/or home prices would impact monthly payments this way:
Home Prices[/caption]

- A 5% increase in home prices increases payments by roughly 5%
- A 1% rise in interest rates increases payments by roughly 13% or 14%
What if both rates and prices increase as predicted?
The report revealed:“If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15%. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.”The percent increase in mortgage payments would negatively impact affordability. But, how would affordability then compare to historic norms? Per the report:
“For the U.S. overall, even if affordability were to deteriorate as forecasted, affordability would still be reasonable by historic norms. That is because the percentage of pre-tax income needed to buy a typical home in 2019 would still be similar to the historical average during 1987–2004. Thus, nationally at least, even with higher rates and home prices, affordability will just revert to historical norms.”
What about home prices?
A decrease in affordability will cause some concern about home prices. Won’t an increase in mortgage payments negatively impact the housing market? The report addressed this question:“Even recent interest rate increases and higher taxes on some upper-income earners didn’t slow the market, as many had feared…Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.”To this point, Arch Mortgage Insurance also revealed their Risk Index which estimates the probability of home prices being lower in two years. The index is based on factors such as regional unemployment rates, affordability, net migration, housing starts and the percentage of delinquent mortgages. Below is a map depicting their projections (the darker the blue, the lower the probability of a price decrease): [caption id="attachment_37405" align="alignnone" width="650"]

Bottom Line
If interest rates and prices continue to rise as projected, the monthly mortgage payment on a home purchased a year from now will be dramatically more expensive than it would be today.Home Buying Myths Slayed [INFOGRAPHIC]
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Home Buying Myths[/caption]![Home Buying Myths Slayed [INFOGRAPHIC] | Simplifying the Market](https://files.simplifyingthemarket.com/wp-content/uploads/2018/04/19122954/20180420-STM-ENG.jpg)
![Home Buying Myths Home Buying Myths Slayed [INFOGRAPHIC] | Simplifying the Market](https://files.simplifyingthemarket.com/wp-content/uploads/2018/04/19123027/20180420-Share-STM.jpg)
![Home Buying Myths Slayed [INFOGRAPHIC] | Simplifying the Market](https://files.simplifyingthemarket.com/wp-content/uploads/2018/04/19122954/20180420-STM-ENG.jpg)
Some Highlights:
- The average down payment for first-time homebuyers is only 6%!
- Despite mortgage interest rates being over 4%, rates are still below historic numbers.
- 88% of property managers raised their rents in the last 12 months!
- The credit score requirements for mortgage approval continue to fall.
Is Family Mortgage Debt Out of Control?
[caption id="" align="alignnone" width="648"]
Mortgage Debt[/caption] Some homeowners have recently done a “cash out” refinance and have taken a portion of their increased equity from their house. Others have sold their homes and purchased more expensive homes with larger mortgages. At the same time, first-time buyers have become homeowners and now have mortgage payments for the first time. These developments have caused concern that families might be reaching unsustainable levels of mortgage debt. Some are worried that we may be repeating a behavior that helped precipitate the housing crash ten years ago. Today, we want to assure everyone that this is not the case. Here is a graph created from data released by the Federal Reserve Board which shows the Household Debt Service Ratio for mortgages as a percentage of disposable personal income. The ratio is the total quarterly required mortgage payments divided by total quarterly disposable personal income. In other words, the percentage of spendable income people are using to pay their mortgage.
Today’s ratio of 4.44% is nowhere near the ratio of 7.21% during the peak of the housing bubble and is instead at the lowest rate since 1980 (4.38%). Bill McBride of Calculated Risk recently commented on the ratio:


“The Debt Service Ratio for mortgages is near the low for the last 38 years. This ratio increased rapidly during the housing bubble and continued to increase until 2007. With falling interest rates, and less mortgage debt, the mortgage ratio has declined significantly.”
Bottom Line
Many families paid a heavy price because of questionable practices that led to last decade’s housing crash. It seems the American people have learned a lesson and are not repeating that same behavior regarding their mortgage debt.Mortgage Interest Rates Have Begun to Level Off

Mortgage Interest Rates
Whether you are a first-time buyer or a homeowner looking to move up to your next home, you should pay attention to mortgage interest rates. Over the course of 2018, according to Freddie Mac’s Primary Mortgage Market Survey, rates have increased from 3.95% in the first week of January to 4.40% in the first week of April. At first glance, the difference between these numbers in such a short amount of time could be concerning. But if we look at the graph below, we’ll see that rates have already started to level off and return to the mark set in February. [caption id="attachment_37336" align="alignnone" width="650"]
That average climbs to 4.73% by the end of this year.
So, what does this mean?1
Waiting until the end of the year to buy, with rates still projected to increase, will end up costing you more money on your monthly mortgage payment. For every $250,000 you need to borrow, you will spend $49.21 more per month, $590.52 per year, and over $17,700 by the end of your 30-year mortgage. And that’s just the impact of your interest rate going up!Bottom Line
If you are ready and willing to purchase a home, find out if you’re able to. Let’s get together to evaluate your needs and help you with next steps! Feel free to call or text me at 516-429-9399. I'm only too glad to help!Be Thankful You Don’t Have to Pay Your Parents’ Interest Rate!


Bottom Line
Be thankful that you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago. If you are thinking about purchasing a home, stop thinking and start acting! Remember, your buying power decreases 10% for every 1% rise in interest rate.Freddie Mac: Rising Mortgage Rates DO NOT Lead to Falling Home Prices

“For current homeowners, the decision to buy a new home is typically linked to their decision to sell their current home… Because of this link, the financing costs of the existing mortgage are part of the homeowner’s decision of whether and when to move. Once financing costs for a new mortgage rise above the rate borrowers are paying for their current mortgage, borrowers would have to give up below-market financing to sell their home. Instead, they may choose to delay both the sale of their existing home and the purchase of a new home to maintain the advantageous financing.”The Freddie Mac report, in acknowledging this situation, concluded that prices are not adversely impacted by higher mortgage rates. They explained:
“While there is a drop in the demand for homes, there is an associated drop in the supply of homes from the link between the selling and buying decisions. As both supply and demand move together in this way they have offsetting effects on price—lower demand decreases price and lower supply increases price.They went on to reveal that the Freddie Mac National House Price Index is…
“…unresponsive to movements in interest rates. In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates. As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices.”The following graph, based on data from the report, reveals what happened to home prices the last six times mortgage rates rose by at least 1%. [caption id="attachment_37220" align="alignnone" width="650"]

Bottom Line
Whether you are a move-up buyer or first-time buyer, waiting to purchase your next home based on the belief that prices will fall because of rising mortgage rates makes no sense.The Cost of Waiting: Interest Rates Edition [INFOGRAPHIC]
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Cost of Waiting[/caption][caption id="attachment_37182" align="alignnone" width="650"]
Cost of Waiting[/caption]
![Cost of Waiting The Cost of Waiting: Interest Rates Edition [INFOGRAPHIC] | Simplifying The Market](https://files.simplifyingthemarket.com/wp-content/uploads/2018/03/09132142/20180316-Share-STM.jpg)
![Cost of Waiting The Cost of Waiting: Interest Rates Edition [INFOGRAPHIC] | Simplifying The Market](https://files.simplifyingthemarket.com/wp-content/uploads/2018/03/09132105/20180316-STM-ENG.jpeg)
Some Highlights:
- Interest rates are projected to increase steadily heading into 2019.
- The higher your interest rate, the more money you end up paying for your home and the higher your monthly payment will be.
- Rates are still low right now. Don’t wait until rates hit 5% to start searching for your dream home!
Bottom Line:
Don't allow the cost of waiting to keep you from buying the home you've always dreamed about! Call me today.Whether You Rent or Buy, Either Way You’re Paying a Mortgage!

“While renting on a temporary basis isn’t terrible, you should most certainly own the roof over your head if you’re serious about your finances. It won’t make you rich overnight, but by renting, you’re paying someone else’s mortgage. In effect, you’re making someone else rich.”Christina Boyle, Senior Vice President and head of the Single-Family Sales & Relationship Management organization at Freddie Mac, explains another benefit of securing a mortgage as opposed to paying rent:
“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to build equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person building that equity. Interest rates are still at historic lows, making it one of the best times to secure a mortgage and make a move into your dream home. Freddie Mac’s latest report shows that rates across the country were at 4.22% last week.