Home values have been at their highest across much of the country since 2006. High home prices can certainly affected a homebuyer's ability to purchase a new home with a mortgage loan. Fortunately, interest rates have maintained their levels through the summer and into the third quarter. A number of different factors have kept the rates stable and are thereby helping keep affordability relatively level.
According to the Housing Opportunity Index released by the National Association of Homebuilders (NAHB), housing affordability in the third quarter of 2016 was just over 60%. With good credit, a stock standard 30-year conventional mortgage, and a modest down payment, approximately 3 out of 5 homes for sale were considered in an acceptable affordability range. Each quarter in 2016 has seen this rate continue to drop.
What does the future hold for this trend? Already there are indications that mortgage rates are going to rise. Let's take a closer look.
Raising Rates
Interest rates are dependent on a number of factors. The Federal Reserve has already indicated that they are planning on raising rates in the fourth quarter. Other factors have contributed to a rise, such as the unexpected outcome of the of the presidential election. Markets and the international economy generally do not like surprises and the worry of many investors has given rates a sharp boost over the last few weeks.
Both the stock market and mortgage rates reacted quite strongly to the results of the election. Even if the rates stabilize as investors grow in confidence in the American economy again, the Fed will certainly raise them.
Housing Prices
Rising interest rates may make it seem like the dream of owning a home is only further out of reach for some interested mortgage borrowers. In some areas, home prices have risen since their lows in 2011. That increase, while beneficial to the recovery of the housing market, does price out some consumers. The good news is that higher interest rates might cool the housing market. With less demand, prices may level out well through 2017.
Even if housing prices do continue to rise, there are plenty of mortgage programs designed to help borrowers reach a minimum down payment threshold. For instance, FHA loans require only 3.5% down.
Outlook for 2017
Given that the two most important trends, housing prices and mortgage rates, seem to be swapping trajectories, the overall affordability of the US housing market will likely continue to remain level or drop a bit. Of course, that is barring any unforeseen market event. There were plenty of surprises in 2016 that worked both for and against the American homebuyer.
The biggest factor that hopeful mortgage borrowers may want to cheer for is for home builders to be able to finally meet the demand of new starter homes to potentially take away the pressure of bidding wars and home value inflation.
Pacific Union Financial
Pacific Union Financial, LLC is a full-service mortgage lender providing mortgages, refinancing, and loan servicing across the country and around the corner. With expertise in home loans for credit levels from best to bruised, we'd love to help you enjoy all the benefits of homeownership. Get in touch today and let us show you how we work hard to make mortgage easy.
Contact Jennifer Dierkhising at 866-672-3804.
