Please enjoy this guest post while I’m working on a few things behind the scenes…. 
In late August the average rates for a popular 30-year fixed rate mortgages rose again, this time hitting the highest level in more than two years. Meanwhile, home prices as tracked by the reputable S&P/Case Shiller Index continued their upward momentum. The price of a typical home spiked more than 12 percent between the spring of 2012 and 2013, for instance, marking the most dramatic rise since 2006 – back before the housing bubble burst.
That means that while homes are becoming more expensive to finance, they are also becoming more expensive to purchase, creating a double whammy for buyers hoping to purchase a home. There’s still time to buy an affordable home, however, but you’ll need to act promptly if you want to capitalize on historically low rates combined with exceptionally good home prices.
The Outlook for Housing
What’s fueling the surge in mortgage rates is an improving economic outlook, which is welcomed news. For years the recovery from the recession has sputtered along without gaining any significant traction because the real estate market was in terrible shape. An extreme overabundance of foreclosures kept downward pressure on home prices, and despite great low mortgage rates, banks were reluctant to lend. The housing market typically leads the charge for any major economic recovery, so the fact that home prices are moving upward confirms that the worst is behind us.
Current Interest Rates in Transition
As the economy recovers, however, rates are headed up. For several years, prevailing interest rates -set by the Federal Reserve- have been only a fraction above zero. The Fed cut rates to the bone in order to avoid a total financial meltdown during the worst recession in history. Dirt cheap rates allowed consumers to keep borrowing and kept the economy from falling over a cliff. If rates remain abnormally low for too long it can cause a chronic economic slowdown, so the Fed has been anxiously waiting for the economy to pick up enough steam to allow a return to higher rates.
It’s much like a doctor waiting for a patient to recover enough to get off of the pain medication, knowing that keeping them on meds for too long can be detrimental to their well being. Already the Fed has curtailed some major stimulus programs that were artificially suppressing rates, which helps explain the recent sudden rise in home loan costs. The economy is coming off of life support, in other words, but that also means that the once-in-a-lifetime bargain basement mortgage rates are about to end.
The Next Six Months are Critical
Where savvy buyers need to be focused right now is on taking full advantage of this temporary window of opportunity before it slams shut. Never in history have mortgage rates been as affordable as they have been over the past five years, and there is little chance that they will ever return to these historic lows within your lifetime. If you want to finance a home there will probably never be a better chance to do so, but by next spring, it may be too late.
Spring is the busiest season for home sales and that’s when nationwide home prices tend to readjust from the previous year. Sometimes real estate prices jump dramatically between the end of summer and the following spring, for example, especially if the economy is bouncing back. Those who procrastinate now while holding out for a slightly less expensive loan or a rare real estate bargain may be left behind. Even a slight rise in mortgage rates can increase your monthly payment enough to price you out of your dream home.
The good news is that all of these market forces are converging as the real season winds down at the end of summer. That creates a really unique chance for serious buyers to take advantage of a less crowded marketplace. As soon as cold weather arrives most buyers stop shopping, for instance, and many realtors take seasonal jobs in other professions in order to pay the bills during the sluggish off-season. With fewer buyers looking at homes, sellers are usually highly motivated to unload their properties and willing to make greater concessions.
What to Do Now
All of this spells opportunity if you’re shopping for a home. While there is still time, talk to a mortgage lender and find out how much you can afford. Then ask the lender to give you a pre-approval letter. The letter doesn’t commit you to a loan and doesn’t guarantee the loan will be approved, but it does indicate that your chances of loan approval are high. Loan pre-approval gives sellers more confidence that the transaction will be a smooth one and not fall apart due to problems with securing adequate financing. Armed with that document you’ll be in a stronger negotiating position than other buyers who have not yet been screened for mortgage eligibility.
Next, hire a Realtor who is a skilled negotiator. Narrow down your choices based on your personal preferences, and begin house hunting. Chances are you’ll find the one you’re looking for just as real estate sales drop off for the winter holidays.
writes for CompareWallet.com in addition to others. He has been an avid writer for years, even winning awards for work he’s done.
