How Can Young Buyers Afford Today's Homes?*
Before I bring you up to speed on rates, I was asked a great question this week from an agent. How do young people afford places in this market? Home affordability is a challenge in many markets these days and there is not a great or easy answer. With that, a quick reminder of the benefits of a 2/1 buydown and how it may help, particularly young folks who will be earning more in the coming years as their career path progresses. In year one, the rate is 2% lower than the rate locked. Year two, the rate is 1% lower than the rate locked. So, on a 6.75% rate, you begin at 4.75%, go to 5.75%, and finish at 6.75% for the remainder of the term. You pay for the interest delta up front as part of your costs. With inventory levels rising a bit, we are seeing more seller concessions. So, if you are able to negotiate a concession to pay for that interest, it can certainly make a difference in payment for a couple of years and with all residential mortgages there is no prepayment penalty so should an opportunity come to refinance, you would still be in a position to do that. Something to keep in mind as we move forward.
*This is an example of one possible industry method to make homes more affordable and is not an offer or actual rates offered by Potomac Bank Residential Lending. All loans are subject to approval.
Uncertainty for Lower Rates
Given the previous several commentary’s, this will be a surprise ( said sarcastically ), but the interest rate roller coaster continued this week with mortgage rates moving down fractionally lower from last weeks levels. May’s consumer inflation news was released on Wednesday and the data was better than expected, which gave rates a nudge lower. If you look at just the last 3 months' read and annualize that, core consumer inflation is dangerously close to the FED’s 2% target. But here is the catch. There is still a good amount of uncertainty as to how the trade deals and tariff’s will impact things. So, as I type, I am not hanging my hat on notably lower rates near-term. This coming week the FED will meet and their policy statement will provide some information on what mortgage rates will be like near-term. This particular meeting they will provide their DOT plot which shows us what their expectations are for short-term rates in the coming months. No one expects a short-term cut at this meeting but getting some clues as to their expectations towards the end of the year and next will provide some idea of what we might be able to expect. It will be interesting.
Hope you had a great Father’s Day weekend and don’t hesitate to ring with any mortgage related questions or needs.
-Steve-