Mortgage interest rates have been inching up, and although rates dropped at the beginning of 2019, most experts predict that rates will continue to rise throughout the year. With the average 30-year-fixed rate nearing 5%, some would-be home buyers may begin to reconsider their purchase plans. However, it’s important to keep today’s rates in perspective and recognize that it’s still a good time to buy.
For one thing, beyond minor short-term fluctuations, rates are not expected to significantly decrease any time soon. Only a decade ago when the housing market was still flying high, a mortgage rate as low as 5% would have been a better-than-average deal. Go back a little further, when average rates were mostly between 7% and 9%, and it’s quite a bargain. So if you’re ready to buy, go ahead and lock in today’s rate.
Home prices will continue to rise
Home prices nationwide are expected to rise by 6.5% over the next 12 months according to Zillow. This forecast was issued in July 2018 and therefore extends into the summer of 2019. Will this trend be seen in Pennsylvania? With the average price of a home in Pennsylvania at $127 per square foot at the end of October 2018, some markets will be hotter than others, but most will stay in the black.
For example, some of the hottest markets right now are Altoona (12%), Reading (10%), State College (8%), and York-Hanover (6%). Cooling off from their highs earlier in 2018 are Philadelphia (4%), Pittsburgh (3%), and Erie (3%). Nevertheless, Pennsylvania will continue to see overall home price increases to continue to average at least 6% per square foot through 2019.
Running the Numbers
If you’re thinking of buying, run the numbers and see where you stand. Many factors influence the cost of a home purchase. Does the difference in payments between an interest rate around 5% and one a couple tenths of a point lower put it your dream home out of reach? Can you tweak other factors to balance the costs and keep the purchase affordable? Consider whether you might:
• Put a bit more down so you can finance less. Is there somewhere you can dig down and find a bit more for a down payment? Maybe look into using some of that IRA savings which you can use penalty-free if you’re a first-time buyer?*
• Consider a shorter-term mortgage. If you can afford the monthly payments, a 15-year mortgage will cost a lot less in interest over the life of the mortgage than a 30-year mortgage.
• Weigh your “must have” factors for a house — are there any that you’re willing to let go of for a lower asking price? Would a smaller house, or the next neighborhood over from your favorite, or one fewer half bath still work for you?
• Shop and compare mortgage rates, fees and terms. Whatever the going rates, there will differences in rates and fees with different lenders.
*Please consult an experienced tax or financial professional before using retirement funds for any other purpose.
For more information on mortgage rates and buying a new home, contact your local builders association at www.pabuilders.org/find-a-local.