The Great Mortgage Rate Roller Coaster

Let’s face it: we’re not made of money! That’s why the ability to borrow cash in the Portland real estate market is a crucial aspect of buying and selling homes.

Most people borrow that cash with a mortgage, and every mortgage comes with an interest rate. Mortgage rates have been in the news recently: First they were falling to historic lows, then we started seeing headlines about a “surge”. When that happens, those of us in the real estate business start looking at how the changing mortgage rate will affect home prices, buyer activity, and seller confidence. Most important, will mortgage rates go up or down in 2017, and how will this affect the Portland real estate market?

Mortgage Mechanics

Mortgage rates and the real estate market are connected in a number of ways, and with all of the acronyms, percentages and types of mortgages out there, it can get very confusing very quickly. That’s probably why most home buyers I meet out there in the Portland real estate market don’t understand all of the dynamics.
But they should try — in real estate, timing is everything. In this post, we’ll delve into what the experts are predicting will happen to mortgage rates and buying power in the new year. Then we’ll apply it to the local market so that you can better understand how mortgage rates influence Portland real estate, whether you’re buying or selling a home this year.

The Rate Roller Coaster

Simple fact about mortgage rates: They go up and down. And, when mortgage rates go up, typically, the real estate market slows down a bit. See my full prediction on Portland housing prices in 2017. That’s because mortgage rates directly impact what a buyer can afford to pay for a home. A higher mortgage rates means buyers are paying more interest. If your lender is charging you more interest, it takes a bigger chunk of your available income, meaning you’ll have less to put toward the home itself. That’s why real estate agents monitor mortgage rates — and develop close relationships with local lenders to help insure their clients are getting the best deal possible.

The Average Mortgage Rate: Down, down, down, up?

Technically, any lender can set any interest rate they like, and rates will always vary based on the length of the loan, the amount, the borrower’s credit score, etc. So how do we get a picture overall of what mortgage rates are doing?

Most analysts look at the Federal Housing Administration’s mortgage rate as a baseline. Specifically, they monitor the average rate for Freddie Mac’s 30-year mortgage, a common type of mortgage. When I say “average mortgage rate” in this article, that’s the one I’m referring to.

The last couple of months have brought a fair amount of excitement to the mortgage rate world. The average mortgage rate had generally been declining since 2009. (In fact, this mortgage rate has been declining since the 1980s, when the average hit 17.5%.)

In the fall of 2016, the average mortgage rate settled into its most recent low, around 3.4%. If you’ve been following Portland real estate market for the past year or two, you’ll know that this coincides with an unprecedented jump in home prices and buyer activity. Who wouldn’t want to buy with mortgage rates so low?

However, if you looked at the news about mortgage rates in the last couple months of 2016, you would have been shocked to discover that mortgage rates were “surging”, “skyrocketing”, and “climbing fast”. In fact, they got as high as 4.3% — around where they were just three years ago.

What caused this spike? Many factors influence the mortgage rates, but most analysts said that it was either an investor reaction to the election, or the mortgage industry was raising rates in anticipation of a Federal Reserve rate hike, or some combination of both.

In any case, January 2017 saw a return to the trend: Mortgage rates lowering again into the 3% range (just under 4% right now). It’s unclear how coming political or economic changes will further impact rates, but as a real estate agent, I always remind my clients to take news reports with a grain of salt. Yes, a jump in the average mortgage rate from 3.4% to 4.3% in the matter of weeks is startling, but not if you look at the historical data. Mortgage rates always fluctuate, and it’s worth keeping an eye on the short-term if you’re thinking of applying for a loan. However, to know how these rates impact the real estate market, a long-range view is much more helpful.

Mortgages Rates and Portland Real Estate

Let’s say mortgage rates did work their way up in 2017, and we start seeing numbers in the 5–6% range (this could happen) like we had ten years ago. Will Portland home buyers head for the hills?

It’s hard to point to a specific point where rates are “too high”. In fact, it’s the job of the Federal Reserve to try to balance mortgage rates and buyer activity. When we’re seeing a hot housing market like we have in Portland right now, the natural reaction would be to increase rates and slow down that activity. If activity dies down, like it did during the housing market crash of ’09, it makes sense to lower rates (which is exactly what the Federal Reserve did). Now, no one expects that type of crash again, anytime soon.

It’s not a perfect system, and there may be a delay of months or even years before mortgage rates move in the direction they “should”. With an increase in mortgage rates, not only do buyers think to themselves “I should wait to buy a home until they go down a bit,” but sellers also tend to wait to put their home on the market. Most will take out a new mortgage to buy their next home, and if they locked in at 3 or 4%, they’re not going to want to take the financial hit of suddenly paying for a mortgage locked it at a 6 or 7% interest rate.

A Great Time to Buy or Sell

Right now, it would be hard for mortgage rates to be much lower, and as we saw in the last couple of months, any kind of shift in the political or economic climate is liable to send them climbing again. It might not be this year or next, but what we do know is that with interest rates at 4% or below, many buyers are not seeing the barriers to entry that they had five years ago, and they’re jumping on the Portland housing market! So what are you waiting for? Call the number one real estate team in Portland and let’s talk.


Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. and top 1% agent in Portland. Since 2003, he has worked residential real estate in the Portland Oregon metro area. Call him direct: 503–714–1111. See his listing package here. See his buyer’s team here.

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