By Mike Bodeen · 23 October 2017
We’ve been here before. We still sound like we’re “crying wolf!” ‘Mike, why would you be talking about higher mortgage rates again? It’s been so long since we’ve been above the 3.5% to 4.5% range, why do you think this will change?”
Well, the answer is, they will change. Rates will go up. And as they do, at least three questions arise.
1. When will they start going up? This article is not about when I think rates will start to seriously rise. My usual caveat when I step outside the bounds of my real estate expertise is that I don’t pretend to know squat about how the economy really works. I believe that few, if any people really know either, so I’m certainly not alone. Might as well throw my two cents in.
2. Why will they go up? See the above caveat, except replace the word economy with oil industry. One thing seems predictable with the price of oil. Rising oil prices increase inflation. Inflation usually increases interest rates as the future value of money drops. We were paying $2.10 per gallon before the hurricanes struck. We’re now paying $2.30. Any national or international tension seems to be a good excuse to raise oil prices. A madman in N. Korea can keep the world on edge. Remember we were used to paying nearly $4.00 per gallon not that many years ago.
3. What effect will this have on us consumers? That’s somewhat predictable. What we do know is that when rates rise, fewer consumers can qualify to get a mortgage. This would normally have an impact on home prices, sending them downward as fewer homes sell, but not so in today’s market of continued short supply. It will however, continue to put upward pressure on rental rates rising as demand for rentals continue to rise. The resulting effect is higher costs to own AND rent.
Whether rates go up sooner rather than later, we will still experience increasing demand for rentals insuring that home affordability will continue to increase.
Our advice remains: Have a say in mitigating rising housing costs; secure a home, or condo, and obtain a still low fixed interest rate mortgage. We know what rates today are amazingly low… still! The only sure prediction is that if you buy now, your interest rate won’t change.