After a long (snoozing) conversation with a banker friend of mine, the takeaway was that interest rates will likely rise in the first quarter of 2014. With a 30 year fixed mortgage potentially going from 4.4% to 5.23%, this could cost borrowers around $122/month or $1,464/year in additional interest payments alone.
Why? Here’s my somewhat simplified explanation: The Fed’s job is to control inflation. For the past couple years they’ve been “printing money” via “quantitative easing (QE)” to keep the sluggish economy moving forward. This QE adds more money to the system. As of late, employment numbers have been good (debatable), growth has been acceptable (debatable), and the economy is moving forward despite the fed’s QE efforts. The result of this strong(er) economy combined with QE is more money in the system, resulting in more inflation, which results in less bang per buck. As of the end of July we’re at a 2% inflation rate: the fed’s target inflation rate. To keep inflation from rising higher and depleting consumer buying power, the fed is expected to curtail QE efforts and raise 10-year T bill rates because the economy is chugging along on it’s own. Raising rates, in turn, increases lending costs for consumers in an effort to curtail liquidity (the amount of money available) in the market.
What does this all mean to potential homebuyers? If you’re on the fence about buying, I recommend sooner rather than later. As the economy improves, interest rates will rise and monthly payments will be higher. Talk to us today and ask about extended rate lock options from our lending partners, so you’ll be all set to move forward with some peace of mind!
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