With the housing market heating up in North Texas, many current home buyers and renters are planning to purchase homes in the next year or two. There are so many incredible reasons to be considering buying right now.
Home prices and values are increasing which makes it a great time to sell and a great time to invest into a new home while interest rates are still at historical lows. Renters are seeing the market rate for rent increasing in North Texas each time they go to renew a lease. New construction homes are built more and more energy efficient which provides a significant relief to homeowners looking to save money on utility and energy bills. Overall, all signs point to this being a great market for home buyers.
With that being said, I continue to be asked about the future of mortgage rates in North Texas, which is not an easy question to field with all the moving parts, but let me try to shed some light into the topic in hopes this helps North Texas home buyers better understand the landscape of mortgage rates.
First of all, let me begin by letting you know that I got rid of the crystal ball years ago – along with the magic eight ball – they both lie! Most of the information and market experts that I follow and consult with on an almost daily basis are calling for higher rates in the future. The fact is that interest rates have been held at artificially lower levels by the Federal Reserve for the last several years in efforts to kick start the economy. One way they do this by buying bonds and mortgage backed securities to drive yields (aka interest rates to the consumer) lower, which in turn, makes it more appealing for investors to pump money into stocks because the risk versus reward favors stocks when the return on bonds is so incredibly low. Make sense?
So, where does this money come from that the government uses to buy said bonds and mortgage backed securities? One place is called a printing press called Quantitative Easing – otherwise known as QE. Yes, as we’ve been told, money doesn’t grow on trees, but if you’re the federal reserve, you can crank up the printing press far faster than you can grow a money tree. However, even the US Federal Reserve knows this is not a plan that can last forever.
Earlier this week, Janet Yellen shocked the markets in a press conference following the Fed Meeting when asked how long it would be before the Fed would begin to raise the Fed Funds Rate after QE. Her response was “probably something on the order of around six months, that type of thing.” Both the stock and bond markets sold off rapidly on the comment.
So, what does that mean for interest rates here in North Texas? Well, what we do know is that the QE schedule (the schedule of planned government purchases of bonds and mortgages) is set to end its tapering in November of December of this year based on the Fed’s decision which will most likely be announced in the Fed Meeting on October 29th. According to Janet Yellen, that means rate hikes would begin as soon as April 2015 or June 2015 – somewhere in the mid to late spring of 2015.
Based on that information, here’s a good chart of where the various current members of the Fed see the Fed Funds Rate heading in the coming years of 2015, 2016 and beyond. Each dot below represents the a Fed member and how high they project the rate hikes to be for that calendar year. In 2015, all but 2 see the Fed Funds rate being higher, and by 2016, everyone sees it higher.
Bottom line is that rates will be moving higher, and it completely depends on how well the markets metabolize the increases. For mortgage rates, there is clearly still of variables that drive rates on the shorter end of the curve from a day to day, week to week, month to month standpoint.
In summary, when we compare current mortgage rates to historical levels, we see that this is clearly the best time to be buying a home, and in general it may be the best time for years to come when we look ahead at some inevitabilities in the years to come for interest rates. As we have all heard before – death, taxes, and change are the 3 inevitabilities in life, and everything I just said could change in a minute if some other global event or economic bomb hits the market. One thing is for sure, however, we’ll be here to let help North Texas home buyers get the best mortgage options when the right time comes.
Stay tuned and don’t hesitate to reach out directly to our office to find out where rates are on the various mortgage programs you’ll be comparing when you plan to buy your North Texas home this year, next year, or the years to come!