If you’ve watched the housing market over the past year, you’ve probably noticed the trend of mortgage interest rates inching up on a regular basis. While it’s impossible to predict how high mortgage interest rates will go in the coming year, experts are cautioning that the availability of cheap money from low interest loans is coming to a close. And for a home buyer looking at Vacaville homes for sale and Fairfield homes for sale, it can mean thousands of dollars in additional interest being paid over the life of the loan.
What makes rates go up or down? Lots of things, including inflation, unemployment rates, government debt sales (Treasury bonds), national and global economic conditions, the Federal Reserve’s monetary policy, and the current state of the housing market, among other reasons. Generally speaking, when economic conditions are good, interest rates tend to rise, and conversely, rates fall during bad economic times. Most economists agree that the economy will remain strong through 2019, increasing the odds that mortgage interest rates will also continue to rise over the next year.
Let’s take a look at a few of the trends that can lead to higher interest rates:
- Inflation: Inflation can eat away an investor’s expected return on the investment if inflation exceeds the interest charged on a loan. If the rate of inflation is anticipated to be 5% next year, the investor/lender will need to charge a rate of return higher than 5% to make a return on his investment. The investor’s lending rate typically includes a “spread” that takes the cost of the funds and adds a percentage markup to both provide the investor a profit as well as to provide some protection to the investor in times of increasing inflation. Most economists believe that prices will continue a steady rise in the coming months.
- Unemployment: Periods of low unemployment, as is the case now, also tends to cause inflation to creep up, affecting loan interest rates (see above). Adding jobs to the economy increases the amount of money in circulation, resulting in extra dollars competing for the same products.
- Treasury Bonds: The US borrows money to support government services. Recent tax cuts and increased government spending means that the massive borrowing will continue into the foreseeable future. The US Treasury has to compete with debt sales by both corporations and other nations and must offer a rate of return that is satisfactory to investors. Investors particularly keep an eye on 10-year Treasury note rates) in determining loan interest rates. As government borrowing continues and interest on other types of bonds likely rise, investors will begin demanding higher rates of return from the US to continue to attract the capital needed to fund government operations.
With these and other reasons pointing towards interest rate increases in the coming months, it can seem like it’s a bad time to buy a home. For the savvy buyer interested in Vacaville homes for sale homes and Fairfield homes for sale, though, that might not be the case. Consider this: While interest rates have risen, they remain low by historical standards. Additionally, if you’ve been reading the news lately, you may seen that housing sales have slowed a bit (-8.9% in August 2018 compared to August 2017 for Solano County). Sellers and their agents have begun to take notice as well, as price reductions are becoming more common in the local market and in Vacaville homes for sale homes and Fairfield homes for sale.
If you’ve been on the home-buying sidelines, this could be your opportunity to take advantage of falling sale prices and historically low interest rates. Speak with one of our experienced agents to help you determine if the time is right for you to become a homeowner. And browse our Vacaville homes for sale homes and Fairfield homes for sale to find your dream home!