The current home loan rates for 2016 definitely speak to a buyer’s market; many forecasters said that March of 2016 would see a 30 year fixed rate in the four to four-and-a-half percent range. This did not happen for many reasons, and current home loan rates are hovering somewhere around three percent well away from four. Here are some of the reasons for the interesting behavior and what this means for the rest of 2016.
Why are mortgage rates so low in March 2016?
Lawrence Yun of the National Association of Realtors (NAR) and many other real estate professionals stated that the low interest rates of March 2016 were due to low housing applications and low housing starts at the beginning of the year. Although housing demand was reportedly up, the demand did not carry through into the other important metrics of the market.
Demand for housing has never been directly related to home sales or new housing starts, but the relative stability of the housing market in the past few months may have fooled many real estate investors into believing that correlation. However, whenever there is any volatility in the market, the true nature of housing demand and home sales shows itself, and this is what happened in March 2016. There will never be a true metric that will properly count the demand for housing other than new applications, and the ability of the general populace to put in new housing applications is contingent on much more than simple demand. As housing prices continue to rise out of pace with income, people give up on certain levels of housing. Government-sponsored entities continue to subsidize lower classes of housing; however, these subsidized loans do not do much to affect the home loan rate in the private market.
Mortgage lenders understand the true nature of home home buying accessibility, and savviest of them refuse to connect that to demand. The lending market kept the mortgage rates low in 2016 in order to attract people of modest means back into the market. These are the people who make too much to qualify for low income Federal Housing Administration (FHA) loans but not enough to truly expand on their buying options in March. If these people give up on the market, there can be no growth.
This is the reason that March saw most of its growth in large metropolitan cities along the western coast of the United States. Cities such as San Diego, San Francisco, Las Vegas, and Los Angeles experienced a 7.1 percent increase in housing purchases over February. Without these cities and cities like these in the statistics, the rest of the nation actually experienced negative growth in housing purchases in the month of March. The bankers were not responding to the general statistics put forward by the NAR; they were responding to the much more relevant local statistics that were staring them in the face in their municipality. Unless you were in a large city like the ones mentioned above on the West Coast, then a high home loan rate would price you completely out of the game in March.
What is the forecast for the rest of 2016?
Most of the real estate professionals in the business say that the current trends will continue into the busy spring home buying season. Only time will tell whether these experts are correct about the spring season helping to pick up the housing starts as it usually does, but lenders will probably keep home loan rates low for the time being in order to cover themselves. There is also no forecasted Fed activity over the next few months that will change interest rates extensively, so politics will play a minimal role in the real estate market over the spring and the summer of 2016.
Housing purchases are expected to continue to rise based in part on the activity that is occurring in large metropolitan cities. However, the real deals will be in the smaller cities and rural areas around the United States. Because these smaller markets are not upheld by multi-million-dollar properties, lenders have very little excuse for trying to raise interest rates out there. If you look into smaller places with similar luxury amenities such as Birmingham, Alabama; Raleigh, North Carolina; and Roanoke, Virginia, you will likely find some properties that are very affordable with good deals on the table.
If you are looking into a home, now is the season to begin. Low home loan interest rates and many other advantages make this a buyer’s market unlike any other that has been in the United States for a while. Get the right help; do not commit to anything as large as a home purchase without the right professionals on your side. At the same time, do not be afraid to move when you see an opportunity that is staring you in the face.
2 Point Highlight
Only time will tell whether these experts are correct about the spring season helping to pick up the housing starts as it usually does, but lenders will probably keep home loan rates low for the time being in order to cover themselves.
If you look into smaller places with similar luxury amenities such as Birmingham, Alabama; Raleigh, North Carolina; and Roanoke, Virginia, you will likely find some properties that are very affordable with good deals on the table.
