February 7th, 2015 5:19 AM by Joan Rusco
Mortgage rates are going to be going up. There is no way current, record breaking mortgage rates can stay this low for long. Here’s what we see happening.
Home builders are constructing speculative houses at a rate not seen in years. These homes are constructed with no buyer lined up in advance. These new home builders are showing confidence that the housing market is heating up. When demand for any product increases so does the cost. But is this alone enough reason for an increase in mortgage rates? Maybe not.
By the end of last year there were almost a quarter million new homes either completed or under construction waiting for buyers. That’s an increase of about 17% over the previous year according to recent data released by the U.S. Commerce Department. The number of new homes sold in 2014 was just over 400,000. An increase from the previous year of just over 1%. Hundreds of thousands of new homes being built and sold sounds like a market heating up but there’s more to this story.
Last year’s new home sales is but a fraction of the average annual sales seen prior to 2000. The number of new homes sold needs to almost double before we get back to a more “normal” market. So, maybe this increasing demand isn’t enough to push the cost of borrowing for a new home upward.
But this is only one piece in a somewhat complex puzzle that lays out a picture of mortgage rates. Then there’s the Fed. Fed is short of Federal Reserve. The Federal Reserve has a committee of bankers that meet about every six weeks to discuss the state of the economy. If the Fed sees an economy heating up they may decide to raise the Federal Funds Rate. This sets off a domino effect and the Federal Funds Rate is the first domino. Next domino to fall is the Prime Rate, then consumer loan rates including mortgage rates. The Fed is nearing a decision to raise that Federal Funds Rate.
After their last meeting the Fed put out a statement saying they are being “patient” about the prospects of a rate increase. This is their way of saying “look, we see this economy starting to heat up so we’re getting ready to start applying the brakes before things get out of hand”. When will they start the rate increase by pushing over the first domino? Perhaps as early as June of this year.
We are laying all this out to say that we now have V.A. loans at incredibly low rates. If you’re thinking about refinancing your existing mortgage or buying a home we encourage you to move sooner rather than later. We’re talking here about a decision you make now that could save you tens of thousands of dollars over the lifetime of your loan.