The experts are projecting mortgage interest rates to increase as the Fed pulls back on it’s asset purchases and is expected to raise interest rates in 4Q21 to help calm the current inflationary environment.
Real estate historically is a hedge against inflation. With the recent record low interest rates, affordability will change for buyers looking to purchase. While supply is forecasted to remain tight over the next couple of years based on various forecasts by experts and points to supporting higher prices (aside from a major recession), the same buyer won’t be able to afford the same amount of house. This will drive the market price changes to revert back to more normal levels.
From Freddie Mac, Fannie Mae, the Mortgage Banker’s Association (MBA), and National Association of Realtors (NAR), interest rates are expected to range from 3.1-3.2% in the fourth quarter of 2021 and increase to 3.3-3.7% by the end of the third quarter of 2022.
Based on these projections, a buyer will be paying anywhere from $66-266 per month more if finacning a $1 million purchase with 20% down. This will result in approximately $24,000-$96,000 thousand more in payments over the life of the loan.
Conversely, if you’re pre-approved to a cap of $1 million, your affordabiity will decrease from $12,500 to $55,000 or a decrease of (1.6%) to (6.9%) based on interest rates rising from 3.1% to 3.25% and up to a high forecast of 3.7%.
The most important element as a homeowner is your mothly payment and what you can afford as you are buying a lifestyle based on your current needs and goals. In the long-run real estate appreciates with cycles in between, so trying to time any cycle is nearly impossible (if I had a crystal ball, I would be retired).
If you would like to discuss this forecast and how this fits into your housing needs, please feel free to call or text me at 949.749.5828.
