December 8th, 2016
When is the right time to "elect" to buy a house?
November brought an end to an election cycle with which we are all familiar. But what happened afterward was something with which homebuyers and the lending industry hasn't been: a swift upward spike in mortgage rates. Home prices have been trending upwards for quite some time, but they were offset by a low mortgage rate environment. But as of November 14, rates broke the 4.0% barrier - a target that experts hadn't predicted happening until the middle of 2017.1
The ability to correctly predict what will or won't happen to mortgage rates has been discussed in these pages in the past. There are so many factors that weigh on the direction of local and global economies - and, therefore, rates - that the only thing that can be prognosticated is unpredictability. With the U.S. election still in flux and a president elect who is still, in many ways, an unknown in terms of ultimate policy, pinning down where things will fall in the next few months, let alone this time next year, is difficult at best.
Financial market and news pundits point to the incoming president's repeated promises to weaken or dismantle existing regulations as ultimately leading to stronger bank and overall financial services industry performance, which would, in turn boost the equity component of the stock market and hurt fixed income - and mortgage rates. The quick rise in mortgage rates as investors rushed into equity investing after the election seems to bear out the correlation.2
Before a rush to judgment is made, the question is how much can he accomplish given the need to navigate congressional debate and approval? None? Some? All? What other event will occur to speed, slow or reverse the march of mortgage rates? As recent history has shown, natural and man-made events outside of the realm of predictability - and the financial and economic - can directly impact the markets: a tsunami-inducing earthquake, terrorist attacks, etc. And, again, because our markets and economy do not exist in a collective bubble, a foreign market hiccup has implications of its own on ours.
What advice is there for homebuyers caught between rising home prices and rates? The same as always. There is only one "right time" to buy a house: and that is when a person is ready to take the leap. The process begins with a buyer taking a long, careful look at their entire financial picture to determine if they are in the best position to not only buy a home, including down payment and fees, but to afford its continued upkeep. Then, they should talk with a lending professional about getting a loan preapproval, which provides a clearer picture of exactly how much house they can afford to purchase. Only then is the time right for them to make one of life's biggest purchases - and commitments.