When economists started to pull together their forecasts for 2016 at the beginning of the year, many of them predicted that national economic growth would be followed by climbing steadily interest rates in the mortgage industry. Despite even the recent implications of the Brexit vote in the U.K., economic uncertainty has influenced current market conditions.
Contrary to the first forecasts for 2016 we initially saw, the United States has been seeing low mortgage rates this year. The low rates are playing a large role in increasing home sales. Buyers with comparatively lower interest rates are more purchasing power at their disposal when shopping for their new homes. However, this recent drop in mortgage rates shows that they may not be as unambiguously beneficial to the housing market as previous low rates have been.
Here are some potential pros and cons to the current mortgage market and how it impacts the Massachusetts housing market
- This year we have experienced a rate reduction of more than 50 basis points. This drop provides buyers with significantly more purchasing power than they otherwise would have. The reduction of 50 basis points translates to reducing monthly mortgage payments by $50 per $100,000 in home price.
- The amount of income needed to qualify for a home loan is also reduced by approximately $1,000 due to this decrease.
When calculating this based off of recent median home price statistics, this means there is a reduction of $2,500 that is needed to finance a home with a 20% down payment.
- Despite June’s Brexit vote in the U.K. eliciting a decline of mortgage rates along with stirring up economic uncertainty, most of the rate decline had actually already occurred in Q1 of this year. This suggests that many had concerns about the economy before the vote in the U.K.
- First time buyers are currently having difficulty locating affordable options due to the comparatively low inventory levels. It is a seller’s market throughout much of the U.S. Others are struggling to accumulate funds towards a downpayment due to high rent.
So far, the U.S. economy has proven resilient to the weaker global economic environment. While it is important to note that it is now currently a good time to secure a pre approval because the market will always fluctuate, lower than average interest rates may in fact persist throughout much of 2016.