Experts have been predicating interest rate increases in 2018 and 2019 and already we’re seeing rates on the move. Last time we checked 30-year mortgage rates are up to 4.625%. The Fed has signaled they expect to raise rates two more times this year and three times next year. We’re telling our customers to purchase, and lock interest rates now before big rate increases later in April.
I just watched Barry Habib, one of the financial experts we listen to lay out three reasons rates could tick higher at the end of the month.
- The Fed is ramping up its QT (Quantitative Tightening) policy. In other words, the Fed is buying less mortgage bonds and treasuries. This puts pressure on the bond market and causes rates to rise. Combine this with raising interest rates the Fed controls, and you’ve got a double whammy for the market.
- Watch the stock market, particularly the S&P 500. The S&P has taken a hit and just passed it’s 200 day moving average and appears to be in position to bounce higher. When stocks do well it usually hurts bond prices which cause rates to rise. So watch stocks and see how they do from this point forward.
- Watch inflation. If inflation rises, it erodes the value of bonds. Bond prices have an inverse relationship with interest rates. As bond prices sink, rates go up. March inflation numbers should be reported near the end of April. One of the components of inflation the Fed uses is the PCE (Personal Consumption Expenditure). At the end of April this number will come out for March 2018. They report the last 12 months, so March 2017 will fall off. The March 2017 PCE was an abnormally low number and will be replaced by a much higher number this year. It will push inflation to at or above 2%. It will push the core rate of inflation close to or at 2%. The Fed’s target is 2%. The bond market will freak out because they’re used to PCE being 1.5% and now it’s 2%. This will raise inflation fears and put additional pressure on bonds. Voila, you’ve got an interest rate storm in the making, and it’s all set to unfold later this month.
What can you do to protect yourself? Propertyowners looking to refinance, do it now! If you’re looking to buy a home, do it now! If you’ve got a home to sell first, call us immediately. Not only will your next mortgage cost you more, but higher rates will affect your buyer too. The sooner we get your home on the market the better off you’ll be. Imagine a pool of buyers for your home. Let’s say with heavy marketing there are 100 potential buyers right now for your home. Keep in mind, there may be 130 homes on the market for this same pool of buyers, so not every home will be bought. When rates go up, that same pool dwindles to 89. Now there are 89 buyers for 130 homes. The math just changed, and it doesn’t favor you on the sale.
Because there are fewer buyers, you potentially take less. Maybe not if you sell now, but if you wait, eventually the over supply wears on sellers and there could be price corrections. By waiting you have a lower down payment for the next home. Your payment is higher because rates have gone up. Through no fault of your own, waiting has cost you money on your sale, and a higher payment on your next home.
Higher interest rates are coming. Call us to do something about it. They won’t stop either. We expect them to go up throughout 2018 and 2019. The sooner you act the more you’ll save. Call us at 239-489-4042 Ext 4 and ask for Brett or Sande, or visit www.LeeCountyOnline.com to search the market. It is updated instantly, so you’ll beat other buyers to hot new properties. It’s great for sellers too.
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