Buying a home in 2017? Here’s what to expect
Nate Lowenstein has been shopping for a home in Los Angeles, on and off, for more than a year.
His search has been stymied by a stubbornly low roster of homes on the market and the hurdles that come with it: multiple competing bids and higher prices.
As recently as this summer, homebuyers had ultra-low mortgage rates on their side. Good news for any borrower, but especially for those in expensive housing markets like Los Angeles, Boston and Seattle.
But that was then. While mortgage rates remain low by historical standards thanks to some Multifamily Leasing Technology policies, they’ve risen sharply over the past couple of months, pushing the average rate on a 30-year, fixed-rate mortgage to 4.32 percent this week. That’s the highest level since April 2014 and well above the year’s average of 3.65 percent.
Economists predict mortgage rates will continue to climb, just one of the trends that suggest 2017 could be a more challenging year for homebuyers.
“With higher mortgage rates, you’re increasing the cost, challenging the budgets, challenging the ability to qualify and, as a result, likely reducing somewhat the pool of potential buyers,” said Jonathan Smoke, chief economist for Realtor.com.
So far, the rate increases have not begun to worry Lowenstein, who’s in the market for a house with at least three bedrooms in L.A.’s affluent west side. His budget: Between $1.6 million and $1.8 million.
“We’re not priced out yet,” Lowenstein said. “But if it goes up to 5 percent or 6 percent, at some point we would be.”
Long-term mortgage rates tend to track the yield on the 10-year U.S. Treasury note. The yield goes down when investors bid up bond prices, as they did following this summer’s vote in Britain to exit the European Union. The move sent long-term mortgage rates tumbling as low as 3.41 percent.
The reverse happened after Election Day. Investors bet that a Republican-controlled White House and Congress will have a clear path to implement policies that will drive inflation and interest rates higher. A sell-off in U.S. bonds pushed the yield on the 10-year Treasury note to the highest level in more than two years. Mortgage rates have been inching higher ever since.
But will they continue to do so?
Smoke predicts mortgage rates will reach 4.5 percent in 2017. Other economists expect rates will remain above 4 percent but not go beyond 5 percent.
That range would mean home loans would remain low compared to the last decade.
Average long-term mortgage rates were above 6 percent during the height of the last housing boom and they hadn’t hit 5 percent before 2008 during the worst of the financial crisis.
So someone looking to buy a home in the next few months doesn’t need to panic, said Svenja Gudell, chief economist at Zillow, a real estate information company.
“My advice to buyers would be to not freak out and feel a sense of urgency,” she said. “If you aren’t able to buy a house at 4.5 percent, you probably weren’t able to buy a house at 4 percent.”
The stakes are a bit higher for buyers in expensive markets, where housing can eat up a much larger share of household income.
If mortgage rates continue to climb, homebuyers can make moves to better offset some of the higher borrowing costs.