While the holidays are a slow time for homebuying, it’s just as well: Santa is running out of 30-year mortgage loans at less than 4 percent.
Mortgage rates, along with most interest rates, have climbed for six straight weeks, that is to say, since just before the Nov. 8 elections. Rates have risen with increased confidence in the economy and expectations of higher inflation.
The move up comes ahead of a widely expected rate hike Wednesday from the Federal Reserve, which hasn’t raised its official overnight lending rate since last December.
America’s postelection rate push means lenders nationally have pretty much stopped quoting long-term mortgage rates that start with a three. It can give some shoppers pause.
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“You’ve got people that are sitting on the fence, that are like, ‘Oh, man, I missed the window,’ ” said Tim Noyce, a mortgage adviser in the Kansas City area with Finance of America Mortgage LLC. “Psychologically, it takes them a while to realize that maybe 4 1/8 th really isn’t that bad.”
Nationally, the average rate on 30-year conventional home loans hit 4.13 percent this week, according to Freddie Mac, the federally chartered buyer and backer of home loans. That’s up from a 3.77 percent national average in November. The national average was only 3.44 percent during July and August.
Many homebuyers may not notice until January, when real estate agents and mortgage lenders say they expect to see more traffic through their doors.
As a number, four is a bit off-putting because qualified home buyers have seen 30-year mortgage rates that begin with a three for most of the last two years. December’s foray into the fours is the first monthlong stint since July 2015, and that lasted only the one month.
First-time buyers and others with less established credit already may have been seeing rates higher than 4 percent, but their borrowing costs have been rising, too.
It adds to a somewhat tough market for homebuyers.
“We already have inflicted some pain in the residential mortgage market,” said Gary Cloud, co-chief investment officer for fixed income at FCI Advisors in Kansas City.
Cloud said mortgage refinancing activity is drying up. Most markets nationally have little inventory of homes for sale. And the houses that hit the market often are bid up by multiple buyers.
Realtor Beverly Moore said quick sales means homebuyers have been focused more on getting a deal and less on what the loan costs.
“We get offers really fast,” said Moore, who is with Reece & Nichols. “We price them high, and they sell right away.”
Higher mortgage rates may have more impact on first-time buyers, Moore said, because they likely have less wiggle room in budgets to meet a higher monthly payment. It may mean spending a little less on a house.
The monthly principal and interest payment on a $100,000 mortgage would climb by about $40 with a 4.13 percent interest rate compared with the 3.44 percent average interest rate in July, according to an online mortgage calculator.
Still, high rents have been pushing first-time buyers into the market in Kansas City, said Pat Harris, a housing counselor with the Greater Kansas City Housing Information Center. Harris said FHA loans are allowing renters who pay $1,000 a month to get into homes with mortgage payments closer to $800.
“They’re looking at what they’re paying for rent,” Harris said. “Most of them buying, it’s lowering their monthly expenses and, of course, building equity.”
First-time buyers and some others in the market can get assistance, for example through Missouri’s First Place Homebuyer Program and the U.S. Department of Agriculture loan guarantee program for rural homes.
Although mortgage rates have climbed quickly, they remain historically low.
They’re far below the inflation-fed double-digit rates of the 1980s. And average conventional 30-year home loan rates hadn’t dropped below 6 percent until early 2003 and stayed above 5 percent until early 2009 amid the Great Recession.
The good news is that Cloud and others who watch interest rate markets don’t see a protracted rise in rates. Wednesday’s rate hike from the Federal Reserve is pretty much baked into current markets.
Experts aren’t saying that the move higher is over just yet. They say it shouldn’t push borrowing costs significantly higher from here.