So you’re ready to buy a home. By now, you’ve probably heard a million stories from friends, family and unsolicited eavesdroppers about the joys and horrors involved. The truth is every home buying experience is unique!
The key to a good experience is educating yourself on the process and being prepared.
Of course, some factors may come in to play that are beyond your control, but if you understand what to expect you’ll have an easier time avoiding bumps in the road.
A good place to start is by understanding the complex and constantly changing landscape of national interest rates. It’s a topic that is often inherently tied to the home buying experience for good reason. But how does it affect the amount you pay for a home? Let’s dive in beginning with a commonly mulled over question.
Is Timing Really Everything?
As you begin your home buying journey, you’ll hear a lot about interest rates – specifically mortgage interest rates and how they fluctuate. How a mortgage interest rate is calculated depends on a variety of factors, many of which depend on the buyer’s financial status.1 But one of the most often discussed and misunderstood factors is the national interest rate.
On December 14, 2016, the Federal Reserve raised the interest rate by .25%.2 This is the second time the rate had been raised in over 10 years due to the Fed’s “zero-interest rate policy,” which was instituted to promote job growth.
According to an article by Freddie Mac®, that rate hike was followed by an increase in average mortgage interest rates to over 4%. That’s still fairly low compared to the last 10 years when rates were around 6.7% at some points.3
So What Was The Effect?
For the sake of perspective, consider this – in December 2015, the Fed raised interest rates .25% after signs of a strengthening economy. That was the first rate hike after the zero-interest policy had been around and the first interest rate hike in over 10 years.4
So how did this affect mortgage interest rates? It may surprise you to find that the national average for mortgage interest rates, according to Freddie Mac® 30-year fixed rate mortgage tracking, actually dropped .50% at some points in 2016 after the rate hike.
What Does This Mean For My Home Buying?
To put it simply, it’s hard to predict what mortgage interest rates will be next month or a year from now. They will rise and fall based on things as complicated as the 10-year treasury yield and as simple as comments made by elected officials in the press.
Timing Isn’t Everything
The moral of the story here is that waiting on a “good” mortgage interest rate is a lot like waiting for the rain to die down before walking outside without an umbrella. You may see a small window to run outside because it’s not raining, but it could come pouring down at any second.
The truth is, the most important economic factor to consider when buying a home is your own financial stability.
Finding a home you love with a payment you can afford is possible regardless of the financial climate. Clayton offers excellent home buying options for anyone searching for an affordable home with energy efficient features that can help you save money every single day.
Plus, these energy efficient homes have a variety of modern designs and are offered at affordable prices.
Right now could be a great time for you to invest in a beautiful manufactured home! But what’s the smart move? Get educated and buy when you and your family are ready.
- "7 factors that determine your mortgage interest rate." Consumer Financial Protection Bureau. January 20, 2015. Accessed February 01, 2017. http://www.consumerfinance.gov/about-us/blog/7-factors-that-determine-your-mortgage-interest-rate/.
- Tankersley, Jim. "Federal Reserve raises interest rates for second time in a decade." The Washington Post. December 14, 2016. Accessed February 01, 2017. https://www.washingtonpost.com/news/wonk/wp/2016/12/14/federal-reserve-expected-to-announce-higher-interest-rates-today/?utm_term=.5d7b6cb6b664.
- "30-Year Fixed-Rate Mortgages Since 1971." Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac. 2017. Accessed February 01, 2017. http://www.freddiemac.com/pmms/pmms30.htm.
- Gillespie, Patrick. "The Fed's rate hike...in 2 minutes." CNNMoney. December 16, 2015. Accessed February 09, 2017. http://money.cnn.com/2015/12/15/news/economy/fed-rate-hike-2-minutes/.