If you’ve been listening to the economic news, most analysts agree that mortgage rates will continue to rise this year and into next. What does this mean if you’re thinking about building a custom home? For some it could mean a difference of hundreds of dollars in their mortgage payment per month. For others it could mean not being able to qualify for the loan amount they want/need. If you’re thinking about starting the process of building your new home this year, you may want to consider doing it sooner rather than later.
I’ve asked Mike Zell of Citizens Bank to help us understand what all the numbers mean.
Friends – meet Mike Zell…banker extraordinaire.
Volatility is the key word describing the Bond Market in the 3rd and 4th quarters of 2015. Take a look at the movement we’ve already seen so far this year.
4/1/ 2015 – Mortgage Rates averaging 3.75% to 3.875% Fannie Mae 30 year fixed.
5/1/ 2015 – Mortgage Rates averaging 3.875% to 4% Fannie Mae 30 year fixed.
6/26/2015 –Mortgage Rates averaging 4.125% to 4.25% Fannie Mae 30 year fixed rate.
Bond Market swings of one to two points in a given day have become a norm in recent weeks, driving rates as high as a ¼ point in one day then retreating back.
Why, do you ask, so much volatility?
The Federal Reserve will hike the PRIME LENDING RATE in the 4th quarter as most economists and I believe. However this has already been factored into rates somewhat so the rise in Mortgage Rates may only be an additional .125% in rate.
WAIT…only .125%? Not so fast. Depending on your loan balance, that .125% increase could equate to thousands in extra interest over the life of your loan. And this is assuming that you gauge the market just right and catch it with only a .125% increase in rate.
Economic Indicators are pointing up which means HIGHER RATES, let’s take a look.
The Greece bailout has weighed heavy on US and European markets. In previous weeks, European investors have been seeking safe haven for their funds in US Mortgage Backed Securities. But we have seen that wane in recent days and the bond market gave back its gains driving rates higher. However it is negative news that fuels speculation on the consequences of a failed bailout, real or imagined, which fuels VOLATILITY. Bonds HATE volatility.
PROJECTED ECONOMIC INDICATORS FOR THE 2nd HALF OF 2015
Gross Domestic Product Growth 3.5% to 4% in the 2nd half of 2015, 2.5% for the year.
Interest rates on 10 year Treasury Note INCREASES to 2.4%.
INFLATION increases to 2.1% in the 2nd half of 2015 from 1.1% in 1st half of 2015.
UNEMPLOYMENT drops to 5.1% from 5.5% in the 2nd half of 2015.
MANUFACTORING growth increases to 2.2% in 2nd half of 2015, up from 0.5% in first half of 2015.
Robust Economy = Inflation =Higher Interest Rates
Bottom line, if you are considering a new build this year, now is the time to act!
Dream Big. Build Smart.
Mike Zell works for Citizens One and has been in the industry for over 30 years. He lives in Stafford with his five dogs. In Mike’s free time, he enjoys traveling, cooking and the outdoors.