If you’ve been at all interested in home buying the last few years, you probably have not been starved for information. The media has been teeming with stories on interest rates, consumer confidence, and economic stimulants within the housing market. With all these stories out there, it’s easy to feel like a real estate pro.
However, home loan programs are constantly changing, adjusting to the consumer base and overall market trends. You may think you know all there is to know about mortgages and rates, but it is prudent to keep up with the current trends.
In an industry where overall rates change daily and different lenders offer various rates within interest rate ranges, it is important to stay up-to-date on the basics and understand what the market moves mean for you as a buyer.
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Watching Wall Street
Understanding the difference between a buyer’s market and a seller’s market is just the tip of the iceberg, or the roof of the house. The market is much more complicated than those two nomenclatures imply. You need to be aware of how the market functions, because even if your financial situation doesn’t change, the moves in the sector and the market as a whole could influence your ability to get a mortgage.
According to the National Association of Realtors, the average homebuyer finances 90 percent of their purchase. That means most people are at the mercy of the markets when it comes to financing their home. This influence can manifest itself in a number of ways, the most notable of which is interest rates.
Interest rates have been low, but they’re always liable to rise, which means it will be more expensive for homebuyers.
“We’re already seeing 1950s-levels of interest rates,” said Stephen Luigi Piazza, Vice President at Quicken Loans. “At some point the market can’t go any lower because of capacity issues. And rates tend to go up a lot faster before they come down again.”
Housing Market 101
Without even going into the details and advisory statements regarding home loans, it is necessary to start with how this market functions within the housing market, and why it even matters for you as a homebuyer.
The housing market tends to be in constant flux, shifting between shortage and surplus – supply versus demand playing a constant tug of war against each other. The directionality of the market, or the market cycle, can last from months to years, in favor of either buyers or sellers. It is important to be aware of where the housing market is in its cyclical movement so you can make informed decisions.
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So where in the market cycle are we now? Is there a bubble? Mike Frantantoni, senior vice president of research & technology at the Mortgage Bankers Association, doesn’t think so.
“If anything, the overcorrection by regulators and trepidation by lenders has created an environment where borrowers and private capital are both left sitting on the sidelines, and access to credit remains quite tight relative to historical norms,” he said.
The advantages of understanding the market are plentiful – not only will you come to the table educated, but this knowledge can help you gauge when it’s worth pressing for further negotiation and when it’s best to make a fast move.
The best thing you can do for yourself when looking to purchase your home is to educate yourself. Do not rely solely on the experts to guide your decisions. Take responsibility for yourself and your financial decisions by knowing how the lending market and the housing market function. The extra time and knowledge will only benefit you in the end.