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I’m a little confused. You would think that rising mortgage rates would have a negative impact on home sales. The higher the rate, the more it would cost a consumer in their monthly payments, the fewer consumers buying homes, right? Not necessarily.
Most experts are predicting that rising rates will actually spur more home buying. First, we have the pent-up demand. With an outlook for a better economy, which contributes to the increase in rates, some consumers will jump off the fence and into the housing market. This increase in demand should raise home prices. However, the higher rates will slow that increase somewhat.
Next, with their home values increasing and an outlook for a better economy and wages, many current homeowners will decide to sell and move up. This increases the number of homes for sale further stabilizing values. This leads to a better balance of supply versus demand. That’s a good thing.
This balance, coupled with the announced raise in the conforming loan amounts by FHFA, will result in homes in the conforming range being more affordable for qualified applicants. They can finance more, with less money down, at the conforming loan rates.
These rates are historically lower than those available for nonconforming, or jumbo, loans. Plus, such home purchases require a much larger down payment. So, the loan limit increase results in more home sales as additional homes are available for financing. These home will be using conforming loans, at conforming loan rates, with much lower down payments required. Now, we’re getting somewhere.
Hey, who am I to argue with all these experts. They say the rise in mortgage rates, resulting from an improving economy, will boost home sales. I say that is good. We’ve been living on the edge buoyed by a false sense of security brought about by an extended period of home loan refinancing. We knew that couldn’t last forever. The purchase market is poised for a comeback and that will be good for everyone.
America loves a good comeback story. Let’s make this a great one. We’ve come a long way since the ‘crash’ and not without some pain and suffering. Hopefully, we’ve learned our lessons well.
Quality loans make for a quality industry and a solid mortgage market. A solid mortgage market makes for good investments, which attract more money into the mortgage market. All of which benefit consumers, lenders, the industry and our economy.
Are you set and ready for the home purchase market comeback? Do you have the training, policies and procedures in place to take advantage of the opportunities to come? Your competitors will be ready. Those lenders who continue to rely on and chase refis will be caught short. The competition will be tough and the lenders who are prepared now will be out in front leading the pack.
You know what they say about the view if you’re not the lead dog…
