Mortgage rates in the USA are currently at a low and it’s having a great impact on our housing markets. On June 13th Freddie Mac reported that the average interest rate for a 30-year fixed mortgage was just 3.82%. That’s the lowest rate since September 2017.

The low mortgage rates are already boosting home purchases for summer 2019 and the trend is expected to continue. Low interest rates are a strong incentive for buyers to expedite their home purchase and secure the best mortgage terms.

If a buyer uses a 30-year fixed mortgage to purchase a home this summer, they could lock in a rate under 4% for the length of the loan. This protects the buyer from future increases in interest rates or market volatility down the road.

There are some buyers who want to wait to make a home purchase because they believe the cost of homes will decrease over the next couple years.

They are only half right.

While we are seeing some indications that home prices could drop in 2020, it will not ultimately lead to lower costs for the buyer. For most cities in California, home prices will remain steady, and in a few cities the home prices might drop three to five percent. If a home that costs $500,000 now goes down 5% over the next two years, the new cost of the home will be $475,000 and the buyer will save $25,000.

The problem is that rates could easily be a percent higher than they are right now and the overall cost to purchase the home will have gone up significantly. In this case, just a 1% increase will cost the buyer an extra $75,000 over the life of the loan.

 

  2019 2020 Difference
Interest Rate 4% 5% +0.01
Home Price $500,000 $475,000 -$25,000
Down Payment 10% 10%
  $50,000 $47,5000 -$2,500
Loan Amount $450,000 $427,500 -$22,500
Monthly Payment $2,148.37 $2,294.91 -$146.54
Total Interest $323,412.78 $398,668.48 -$75,255.70

 

Many current homeowners could also benefit by refinancing their homes with a lower rate. Similar to the new homebuyer, a home refinance can save them money on their monthly payments and over the long term.

It’s good to know that you can continually refinance your home and make adjustments to your mortgage. If current rates are even a half percent lower than your current rate, it’s time to look at a home finance.

Home Loan Applications Increasing

The most obvious sign that low mortgage rates are boosting the housing market is that there has been a recent surge in home loan applications among buyers.

According to the statistics from the Mortgage Bankers Association, home loan application volume surged during the first week of June 2019. For the week ending June 7th, they increased 26.8 percent from one week earlier.

The Mortgage Bankers Association survey covers approximately 75% of all mortgage applications for retail and residential properties in the USA. It has been conducted every week since 1990 and is considered a great place indicator of market health.

Mortgage Trends to Expect This Summer

What are the mortgage trends we can expect in the summer of 2019?

As the summer months of 2019 progress, mortgage rates will rise – but at a slow pace. The prediction is for a steady rise over the next couple years, rather than a significant spike.

Naturally, the rising rate will cause the housing market to slow down.

However, even if the housing market does slow and mortgage rates do rise – buying a home will still be a smart investment. The truth is that as long as mortgage rates remain below 7 percent, it will cost less to buy than rent.

Buying a home will create long term wealth accumulation and can also offer you tax advantages, stability and the possibility of a rental income. Real estate has performed better than any other asset type over the last 30 years – especially if you consider price appreciation and tax-write offs.

So, why not take advantage of this historic low in mortgage interest rates and invest in real estate this summer?

To learn more about purchasing real estate in California, contact our team.

 

This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc. with information from the Mortgage Bankers Association and the Freddie Mac report.

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