Media reports recently indicated that mortgage rates hit a four-year high last week when they reached 4.46% for a 30-year mortgage. Headlines read that this was the highest level since January 2014. They are even higher this week.
While it sounds daunting, in a historical context, today’s rates are only a little over half of the historical average — and rates have changed very little over the past couple of months. In fact, rates are up just a couple tenths of one percent since Valentine’s Day when they were at 4.38%
While rates do impact affordability, rates are a function of the economy. At least in theory, a healthy and growing economy is managed and maintained by government control of interest rates. The First American Real House Price Index measures price changes for SFRs, adjusted for the impact of income and interest rate changes on a consumer’s buying power — basically, a good measure of affordability. According to the index, buying power has increased about 0.8% in the past year and may be why demand is still strong. However, more recent data is an indication that we may be on a precipice. Between January and February, that buying power decreased 2.6% and was most likely due to rate increases.
While further rate increases may play a part, the real driver toward the edge of that cliff is going to be inventory or the lack thereof. Demand in the short term will likely drive prices even higher as there are more buyers than there are houses for sale, especially in the entry level market. Unless something gives and this supply squeeze lets up, affordability is going to become an issue for potential home buyers — moving many out of the market.
At Embrace, we have identified some well-qualified segments of the consumer market that may be underserved by current market offerings. We are about to launch our “Beyond” products, which will make financing available to a larger consumer base. Give our loan officers a call to discuss how we can help you meet all your clients’ financing needs.