It is no secret, the past 5 years have been a perilous trip down hazard lane; due to a particular combination of administrative decisions, and the inevitable flaws of the human condition, our population can be found digging itself out of the financial trench we fell into.
Is it all for the worse? Not necessarily, due to the reliable cause and affect actions we find ingrained in our instinct; we have drawn a few positive things from the housing bubble of 2007/08:
Low Interest Rates:
Now traditionally this is a good thing, but the normal frequency of things has shown an efficient economy is thriving when rates are around 5-6% fixed; to those first time homebuyers that thing the days of 3.5% - 4.5% fixed rates, are the norm, well hold on because the artificial money flow from the QE3 program has been setting a false bottom for your average mortgage rates, and it’s going to change.
Honestly this should have been the standard from day 1, the birth of non-traditional mortgage products like the “interest-Only” ARM, and “Negative Amortization” Loans, were engineered to fail from the start. Let me back step, and say that interest only options had/have their place; but the guidelines on who can acquire them; were seriously under regulated.
A More Educated and Responsible Era of Mortgage Professionals:
Needless to say, this is something that should have been monitored at the beginning, to administer a required educated for all purveyors of financial information. This law was officially passed in 2008/2009 and everyone who wanted to continue originating loans had to be on board. It required a unique identifier number, call an NMLS I.D, something that wasn’t originally thought of 20 years ago.
What does all this have to do with a rising rate environment? It is no secret that there is certain volatility in the marketplace due to an upset in the Federal Reserve Chairmen position. A new candidate has been elected by the Obama Administration to handle the financial policies (like QE3) and it has the stock and bond market in an uproar.
It is my personal opinion that we will see the days of 3.5-4.5% fixed loans, be wisped away into our memories like an enjoyable birthday party you had at age 6.
If you have not refinanced or purchased in the last year, it is certainly time to consider making the move. I would not want to insinuate that you NEED to purchase a home if you are not financial stable, but if you are on the fence and the only thing holding you back is the thought of “taking the plunge”; well do it, you will never own a better property for the money you want to pay, as you will right now. As interest rates rise, people will not stop buying houses; the only thing that will change: The size of the home they do buy. So if you want that extra 500 square feet in your two story colonial with attached garage; and you have every reason to buy it, but just “don’t like the color”, forget it, at 4.5% fixed rates, you can afford to paint it.
Justin C. Scott
Senior Mortgage Consultant