Do you remember last March when I wrote that mortgage rates topped 4.0%, coming in at more than a full percentage point compared to the same time last year? I said in that column that it was important to hold on because things might get a little choppy? Well...things are now a little choppy.
Freddie Mac's weekly mortgage rate survey taken on April 21 reports that the average 30 year conforming fixed rate topped 5.0%. The survey showed the average rate to be 5.11%. That's quite the jump from one month to the next. It's been years since we've seen such rate moves. Rates might be a little higher or lower where you are, but there will be very little variance. Why are things moving in the direction that they are? Inflation.
Inflation means higher prices for pretty much everything but it also means the consumers' paycheck doesn't go as far as it used to. The dollar is stretched. This can lead, and usually does, to an economic slowdown. To help keep a lid on inflation, the Fed steps in and increases the cost of funds to banks. This increase in turn is then passed onto the consumer. Things cost more and the dollar buys less.
Fed watchers are expecting another 0.5% bump in the Fed Funds rate. The rate increase last month was the first in four years and now we're probably going to see the next rate increase just a few weeks later. May 4th to be exact. And Fed experts can see another rate 0.5% rate increase six weeks after that. Last month most experts predicted a rate increase of 2.00% before the end of the year. With these two 0.5% increases, we'll get to 2.00% much sooner than by the end of the year. It could very well mean the rise will happen before summer comes along.
If you've been holding out for rates to go back down before refinancing, I'm afraid that notion is way, way back in the rear view mirror. And if you're in the market to buy soon, you might start to think about looking for that next home sooner rather than later. Mortgage rate increases make payments higher but in reality it means borrowers can qualify for less of a loan. It also means that someone who did qualify for a particular loan amount may discover that qualifying figure has shrunk. When you combine this increase with the continued strong housing market, it creates quite the quandary.
At some point the Fed's plan should start to work and the economy will begin to settle down. But no one really knows when that will be. The choices might be to pay a discount point to lower your mortgage rate. Pay one point, your 30 year rate can be lowered by about 0.25%. If you want to avoid a 0.5% increase, you'd need to pay two ponts.Two points on a $200,000 mortgage comes to $4,000. These are some things you need to talk to your loan officer about. My suggestion, if you're in the market for a mortgage, is to act. It appears waiting will make things more expensive.
