The Boston area mortgage rate outlook this spring is creating a sense of urgency on the part of prospective home purchasers. With interest rates having edged up slightly and home prices rising continuously, many borrowers are making a beeline to apply for home loans. Their rationale is the sooner they act, the more they potentially will save – on interest rate charges and home price increases.
Interestingly, home purchasers are electing to take out adjustable rate mortgages (ARMs) in unusually high numbers in hopes they can handle the Boston area mortgage rate outlook of potentially higher rates and save money on their mortgage payments in the first few years.
Mortgage activity has been on the rise in recent weeks, having increased nearly 3.5% from one week to the next, based on the most recent report from the Mortgage Bankers Association (MBA.) Despite the week over week increase, total mortgage volume is roughly 18% lower than it was during the same period in 2016. Experts say the lower volume has more to do with the decrease in the number of refinance applications than it does with the Boston area mortgage rate outlook. While most borrowers refinanced a year ago when interest rates were at or near record lows, there is still some refinance activity in the mortgage marketplace. The volume of refinance loans is down 34% so far this year, but mortgage lenders have seen an increase of more than 5% in recent weeks – based on consumer fears that the Boston area mortgage rate outlook might include higher interest rates moving forward.
Some analysts attribute the rush to refinance to recent remarks made by key Federal Reserve officials indicating what wound up being another interest rate increase in March. In addition, other economic factors came into play such as the recent Gross Domestic Product (GDP,) manufacturing results and inflation projections. While mortgage interest rates really are not directly tied to federal funds rates – upward or downward – a rate increase by the Federal Reserve could still make mortgage interest rates increase, only time will tell on this for sure. Fed funds rates are generally more short-term in nature, while mortgage rates are longer term, of course.
How will the Boston area mortgage rate outlook impact the usually brisk spring real estate sales season? While the true impact remains to be seen, economists say demand on the part of home buyers is still high. The problem, they contend – which is of greater concern than the prospect of higher interest rates – is affordable homes are still in short supply. The inventory shortages that occurred during much of 2016 have carried over into 2017, and don’t appear to be improving anytime soon. Since a good portion of the housing demand is on the part of millennials and first-time buyers, the inventory shortage is of major concern.
As mentioned above, one of the results of the recent Boston area mortgage rate outlook is more buyers are opting for adjustable rate mortgage solutions in an effort to save money since the ARMs offer lower interest rates for a certain time period. Statistics reported by the MBA showed that the ARM share of recent mortgage lending applications was the highest since 2014. The results simply highlight the concern borrowers have for higher interest rates, and in spite of the indications, home demand remains high going into the spring. In addition to the ARM share of applications reaching a three-year high, the average loan size for applications to purchase homes reached a high of $313,000. This is the result of two different factors. First-time buyers tend to impact the higher mortgage amounts less than buyers in the market who are moving up and buying bigger, newer and more expensive homes.
The Boston area mortgage rate outlook may have a definite impact on the spring market, however, all early indications are that due to high demand and the overall impression that interest rates – despite their slight upward tick in recent months – are still relatively low. Many borrowers remember when interest rates were in the 8%-9% range for a number of years. With that in mind, rates roughly 50% as high are veritable bargains today – in spite of the higher home prices that exist in today’s real estate market.
More first-time borrowers are going to faced with the dilemma of continuing to pay higher rents versus putting their monthly payments into paying a mortgage and building equity in a home of their own. The home participation or home ownership rate reached an all-time low in 2016, but the trend seems to be one of slight improvement during 2017. Time, as usual, will tell as first-timers decide what to do and when to do it. Housing inventory, as already cited, will determine a great deal as the market needs starter homes and more affordably priced houses to meet the demands of some of the first-time home buyers. In addition, there needs to be a larger supply of “move-up” homes for that segment of the buying public that’s ready to expand into a larger home, a better neighborhood or a newer home.
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