Mortgage Rates - Do you think they're going up?

[Anonymous]

We're thinking about downsizing in a major way -- selling our house and moving into an apartment so we can pay off some student loans. Our plan would be to live in an apartment for about two years and then buy again, and hopefully stay put this time. Two things we're concerned about are mortgage rates and what they'll be in two years, and home prices - will they go up. If anyone has any thoughts I'd love to hear them. This is a huge decision and I'd love to hear some other opinions.

[Anonymous]

They will DEFINITELY go up. They will probably spike and hit 8 or higher before they return to 7% or just under. We don't know when they will start going up, but I would bet it would be less than 2 years.

Home prices will, however not increase if rates jump like that. At certain price points they will likely go down.

[Anonymous]

If mortgages go up, I would guess that some buyers will "assume" the mortgage of the owners of the house they're buying and would be able to keep the low interest rate in place. I think FHA loans allow this but am not sure about conventional.

[Anonymous]

Mortgage rates will go up, but probably not anytime soon, at least based on what the bond market (and in particular the pattern of swap prices) is saying. If you wait one year, you're almost certainly safe -- rates are highly unlikely to go up much. If you wait two years, you're probably still OK, but it's much less of a sure thing.

[Anonymous]

Also, keep in mind that all else equal, higher interest rates mean lower house prices -- the higher rates mean people can't afford to pay as much, so demand drops and prices drop.

[Anonymous]

Wow, this brings up three topics I actually think of as related - mortgage interest rates (and inflation); home prices; and student loans. This is just my 2 cents obviously - none of the "experts" would know the exact answer to your situation.

First- despite all the run-up in household expenses during the past 10 years (housing, education, healthcare), family incomes on average have stayed the same and even declined in real terms.

Overall, I think while the real estate market has normalized somewhat, buyers are pretty tapped out. If rates go up, people will be able to afford less, which will put downward pressure on home prices. You might have an 8% interest rate, but on a principal amount that is lower than it would have been if you were in the buyer pool during 4% times.

You also bring up student loans. Student loans are SKYROCKETING and again, this is where the younger buyer pool is getting tapped out-- again placing downward pressure on home prices. (The opposite effect of what our grandparents' generation had with the G.I. Bill post-WW2.)

If taxes go up - that too will place downward pressure on home prices. And, what if Congress phases out the mortgage interest deduction (partly or entirely)- more downward pressure. If healthcare goes up - if gas prices go up - again buyers have less money to spend on houses.

I do think that if gas prices go up (which they will, inevitably- how fast, who knows) or even stay at the current (~3.75) level, that will increase the trend to walkable neighborhoods not far flung suburbs which require so much driving.

I kind of think the policymakers will try to avoid anything that will make housing prices drop in numerical terms-- but I think they will level off. And, with inflation and other expenses crowding into a family budget, I think housing will eventually occupy a lower part of the average family budget than it does now.



**** I think you are REALLY smart to pay off the student loans. DH (and I) paid off $120k of law school debt and it is so much more peaceful, and so worth it. All the best to you!

[Anonymous]

We've thought about this alot because we're trying to decide when to buy our first home. Neither my husband or I is very well-versed on economics, but we both think that interest rates will go up. They obviously can't go down - too low already! We're hoping they will only creep up. Where we disagree is what a higher interest rate will do to home prices. I just think there's too much money in the DC area for home prices to be much affected by a higher interest rate. In other areas of the country, I think prices will tank reflective of the interest rate/purchasing power of buyers, but here, I just wouldn't count on it.

[Anonymous]

Anonymous wrote:I just think there's too much money in the DC area for home prices to be much affected by a higher interest rate. In other areas of the country, I think prices will tank reflective of the interest rate/purchasing power of buyers, but here, I just wouldn't count on it.

Having high incomes here is the main reason why house prices are so high. And having a stable job market here is why house prices have stayed high, even while the rest of the country dropped a lot. But neither of those things mean that the market here won't be affected by interest rate changes. High-income people still borrow money to buy houses, and are still affected by changes in interest rates.

(Also, given the current negotiations over the federal budget, I wouldn't count on the job market here remaining stable: a big federal budget cut would mean a lot fewer jobs around here -- for federal workers, but even more so for federal contractors, which is where the real money is.)

[Anonymous]

Anonymous wrote:

Anonymous wrote:I just think there's too much money in the DC area for home prices to be much affected by a higher interest rate. In other areas of the country, I think prices will tank reflective of the interest rate/purchasing power of buyers, but here, I just wouldn't count on it.

Having high incomes here is the main reason why house prices are so high. And having a stable job market here is why house prices have stayed high, even while the rest of the country dropped a lot. But neither of those things mean that the market here won't be affected by interest rate changes. High-income people still borrow money to buy houses, and are still affected by changes in interest rates.

(Also, given the current negotiations over the federal budget, I wouldn't count on the job market here remaining stable: a big federal budget cut would mean a lot fewer jobs around here -- for federal workers, but even more so for federal contractors, which is where the real money is.)

Are you my husband?? That's exactly what he says.

[Anonymous]

Anonymous wrote:We've thought about this alot because we're trying to decide when to buy our first home. Neither my husband or I is very well-versed on economics, but we both think that interest rates will go up. They obviously can't go down - too low already! We're hoping they will only creep up. Where we disagree is what a higher interest rate will do to home prices. I just think there's too much money in the DC area for home prices to be much affected by a higher interest rate. In other areas of the country, I think prices will tank reflective of the interest rate/purchasing power of buyers, but here, I just wouldn't count on it.

So what are you going to do? Will you wait to buy? We think that we'll be able to save more money by waiting two years or so to buy, because during that time we'll havemuch lower monthly costs. We won't have an extra car, no yard/landscaping costs, lower gas costs, etc. The issue is though will the housing market go up enough during the next two years that it will erase the extra we'll be able to save? Will a house that costs 700K today cost 775K in two years, and be a 6% mortgage instead of a 5% mortgage? I wish it was more predictable. I don't think the housing prices are going to go up very much during the next few years, but I have no idea.

[Anonymous]

Not PP, but we are going to wait at least a year. Obviously rates have nowhere to go but up. But I don't think they will shoot up and I don't think prices will be going up during that timeframe. We want to have 20% down plus emergency savings, and right now we only have the 20% down.

[Anonymous]

The crash in mortgage market would have had a larger impact on home prices than a gradual interest rate increase- so really the lowest real-term prices for the DC area would have been 2008-2010 or so. Really, you saw flat-lining or very slight drops in prime areas (NW/close-in suburbs), and sharper drops in less prime areas (loudoun county etc.). A mortgage rate increase will probably dampen the already recovering prices in prime areas, and perhaps result in slight drops in the less prime areas. If your target is prime areas (NW/close-in MD, VA), you may be in a better economic position to buy now, low rates and earlier in the recovery stage.

[Anonymous]

Seems to me the last thing the government is going to allow is a spike in mortgage rates. There is still a glut of housing weighing on the recovery and an increase in rates is surely not going to help this. I think the PP who sais prices and rates wont move much in the next year was dead on.

[Anonymous]

I'm not sure I would do this. You could lose a lot in closing costs and fees by doing this.

Could you rent out your place, cover your mortgage and rent a cheaper, smaller place in the meantime? I might do that. Or would you be selling your house eventually anyway?

[Anonymous]

Anonymous wrote:Seems to me the last thing the government is going to allow is a spike in mortgage rates. There is still a glut of housing weighing on the recovery and an increase in rates is surely not going to help this. I think the PP who sais prices and rates wont move much in the next year was dead on.

I agree. Until the housing market in most of the country is solidly into recovery, the government won't let mortgage rates go up much.