The next phase of the housing recovery is underway – higher credit costs.
The financial crisis was not favorable to anyone’s means, but it did provide unique opportunities in the market. Some of those opportunities included mortgage and consumer debt financing. These opportunities were available for many consumers because of low home prices and very low interest rates.
In looking at historical data, we see that the sustainable and low 30-year mortgage rate was 6.25 percent two cycles back. The cycle that followed was then 5.25 percent and thus the current cycle should be 4.25 percent. Instead, unsustainable mortgage products were implemented to keep rates low and created an artificial security. Rather than this cycle seeing rates at 4.25 percent, we saw rates at 3 percent.
Consumers have been able to buy new homes, bigger homes, downsize and qualify to reduce their mortgage payments because of these low rates.
However, as all boats must rise with the tide, so must credit rates rise with economic growth. We’ve recently talked about the increase in construction and the ripple effect it is causing on the housing market that indicates this economic growth and a return to normal and healthy operating levels. As the economy gains momentum once again, opportunities available through artificial by-products of the recession will diminish.
The low rates will inevitably diminish, so before they do, consumers should take advantage of what is currently available. Whether you are looking to buy or refinance, you should explore the options available given the low rates while they are here.
The best advice we can provide is for consumers to seek out licensed mortgage loan originators (MLOs) for this exploration. It is imperative to choose a MLO that is trustworthy and professional. In regards to rates, choosing the right MLO can affect whether or not you are able to lock in your rate at the current price instead of being forced to pay a higher price with an expired lock down the road.
With hope that the economy will not return to the bottom for some time, consumers should act now to be sure they’ve taken advantage of the current opportunities.
- Cal Haupt, President and CEO of Southeast Mortgage