Rising interest rates mean less buying power, and many in the housing industry locally are witnessing the effects of fluctuating rates and the government shutdown in recent weeks.
Local mortgage banker Thomas A. Zoellner, of Academy Mortgage Corporation in Crown Point, said there was a rate increase in mid-June when Federal Reserve Chairman Ben Bernanke laid out his plan to ease up on buying U.S. bonds and mortgage-backed securities.
“We will see an increase over the year as long as the economy continues to recover and the Fed pulls out of buying U.S. bonds and mortgage-backed securities,” Zoellner said. “Increased interest rates will affect the borrowers buying power because it will increase the borrower’s debt to income ratio, which will lessen the amount we can lend them.”
Mortgage buyer Freddie Mac said Thursday the average rate on the 30-year loan was 4.22 percent. The average on the 15-year fixed loan was 3.29 percent. Both are the lowest averages since early July
But rates are significantly higher than in May, when the Fed first signaled it might slow its $85-billion-a-month in bond buys.
Rates began to fall last month after the Federal Reserve held off slowing its $85-billion-a-month in bond buys, which have kept rates low. They fell further this week as the shutdown prompted investors to sell stocks and buy Treasury bonds.
The Federal Housing Administration, which guarantees about 30 percent of U.S. home mortgages, says that if the partial shutdown continues for an extended period and the agency's funding runs out, it wouldn't be able to continue approving loans.
In that case, "We do expect that potential homeowners will be impacted, as well as home sellers and the entire housing market," the FHA said in a contingency plan.
Buyers wouldn't disappear. But some would linger in limbo until the government reopened and a backlog of applications cleared.
When getting mortgage rate-quotes, consumers need to keep in mind that interest rates can adjust many times each day, Zoellner said.
“It is difficult to quote a rate at any given moment,” Zoellner said. “I can say interest rates are still remarkably low looking back over the past five years.”
Zoellner recommend that consumers who are “sitting on the fence” contact a local lender and see if now is the right time for them to invest in real estate.
“If so, do it,” Zoellner said. “Home prices and rates are still historically low and purchasing real estate can be a very sound investment.”
Realtor Rhonda DeHaan, Director of Development and Benefits for Redkey Realty Leaders, agrees that now is a great time to buy a home.
DeHaan concurs with Zoellner that interest rates affect buying power.
“A rise in rates costs buyers in overall interest costs over the life of a loan and monthly payments rise,” DeHaan said. “It also has an impact on the price range they can afford or are comfortable in. As agents we can protect them when writing an offer by completing the financing section of our real estate purchase contracts stating that a certain interest rate is the highest they would purchase at.”
DeHaan recommends potential homebuyers work with a loan officer who keeps them informed and educated.
“A buyer who is on the edge just needs to be educated on the impact of the rates rising on their purchase price range, cost per month and cost over the life of the loan so they understand,” DeHaan said.
Zoellner said a buyer's credit score plays a vital role in the loan rate a consumer receives.
“The higher the score the better rate the borrower will receive because it’s less risk for the bank,” Zoellner said. “In addition, different loan programs and the loan-to-value will affect the borrower’s interest rate.”
Single-family home sales in Northwest Indiana increased 20.7 percent in August, defying a recent surge in home mortgage interest rates.
A total of 987 homes were sold by Northwest Indiana Realtors in August, as compared to 818 homes sold in August 2012, according to the Greater Northwest Indiana Association of Realtors. The median selling price increased 0.7 percent.