As we look towards the end of 2019 and with thoughts about the new year ahead we can reflect on what has been a year of forecast revisions for home sales and mortgage volume. What began as an expectation for rising rates quickly evolved into the opposite as concerns about a global economic slowdown drove bond yields lower as investors looked to safer investment options.
The question is how long this low interest rate environment might last. Looking at 2020 my message for prospective homebuyers and realtors is twofold. First, history can repeat itself. Second, luck is what happens when preparation meets opportunity.
The graph here shows the history of the 30 fixed rate mortgage going back to the early 1970’s. As I look at this and consider the current near historic lows in interest rates I will begin 2020 with one piece of advice to anyone considering a home purchase – buy now.
My first home purchase came with an interest rate of 12.5%. Yes, those rates were real. No one ever predicted this prolonged period of rates hovering in the low single digits.
What this means for potential buyers? Consider this, the difference in cost on a $300,000 loan of only 2% is significant. For example, the difference between, say, a 3.5% mortgage and a 5.5% one is about $355 per month. That’s over $40,000 in just a decade.
The one thing that is clear is that this period of low rates is a unique historical ability to lock in and take advantage of this perfect storm where home demand is expected to remain strong for years ahead as millennials continue to increase housing demand and yet locking in a perhaps once in a lifetime opportunity to capture the near lowest possible interest rate and payment may make home ownership a valuable opportunistic investment decision for this new year.
A picture is worth a thousand words and this picture of rates tells me one thing, there is a lot more room to rise than there is for rates to decline. 2020 should be the year for the American Homebuyer to lock in and own if they are able to.
Clearly, decisions to rent or buy should consider job security, life decisions, and ones ability to be a homeowner, but for those that meet that test the timing may have never been better.
Here’s to a great year ahead for all.
David Stevens, CMB
David H. Stevens CMB, (Dave) is the CEO of Mountain Lake Consulting, Inc. Dave is a 36 year veteran of the Mortgage Banking industry having served as the US Assistant Secretary of Housing and as CEO of the Mortgage Bankers Association. Amongst other roles, Dave also serves as an advisor to George Mason Mortgage, LLC.