If you’re one of those who have been noticing the increase in home mortgage rates, you’re not alone. What do these increases mean for you as you and how do they impact your ability to purchase a new construction home?
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A growing economy means more demand, higher costs
The United States’ economy has been in a growth mode. Based on this, the Federal Reserve raised interest rates in March. This means the cost of borrowing money will increase, however, the good news is that mortgage rates and Fed rates are not linked to one another.
AJ Smith writes in an article for Forbes,
“Generally, as the economy strengthens, the Fed raises rates. So, while rising rates are a positive signal for the economy as a whole, there are some consequences that aren't always positive for potential homebuyers.
The central bank’s actions don’t directly affect mortgage rates. But increasing rates can make buying a home more expensive.”
Over recent months, home mortgage rates which were historically low, have increased modestly and yet, are still highly affordable. In a news story in The Post and Courier, Dave Sansom, president of the Charleston Trident Association of Realtors is quoted saying, “Each time the Fed raises (or lowers) rates there are consumers that become concerned, since many people are unaware that mortgage rates and the Fed's rate are not tethered together," he said. "I take the short-term rate hikes as a good sign that the economy is strong. A strong economy will keep the housing market strong."
Mr. Sansom also observed, that mortgage rate increases "have little to no influence on the 15- and 30-year mortgage rates."
Charleston home prices on the rise along with mortgage rates
According to the Charleston Trident Realtors Association, in February 2017 the median home price in the Charleston market is $241,000. In February 2016, the median home cost in the market was $236,484. Demand is high in the Charleston region and this is reflected in the increase in home prices in our market.
Using the Carolina One Mortgage calculator, a buyer of a $241,000 home will make a mortgage payment of $1,488 per month, assuming a 4.25% interest rate. A year ago, using the mortgage rate of 3.73, and keeping all other variables the same, a buyer would have paid $1,415 per month, or $73 dollars less at the lower interest rates.
Ms. Smith notes, “Experts don’t expect mortgage rates to rise too much following the Fed rate hike. Some don’t believe rates will exceed 5%. According to the deputy chief economist at Freddie Mac, rates should stay between 4.25% and 4.30% during this year’s home-buying season (roughly spring into early summer).”
Spring on into the market to lock in prices and rates
Wise buyers will move into the market sooner rather than later. You must go ahead and get prequalified for a mortgage you can afford and be ready to apply for a mortgage for the house of your choice. [Read our articles on mortgages.]
New home builders in the Lowcountry are building competitively priced new homes, however, home buyers need to be aware that high buyer demand, is not the only factor driving up new home prices. In Charleston home buyers are experiencing increasing real estate priced due to land cost increases, increasing labor costs, and materials cost increases.
If you think you want to purchase a new home, now is the time to move wisely into the market. Get prequalified, visit area new home communities, review plans and lots and choose your home sooner rather than later.
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