The chance to refinance your mortgage at around 5%, or to enter a low-interest one, is going to end soon. The fewer than 5% interest rate is the lowest it has been for a long, long time. It is this low because of the recent recession-border-line-depression. The Fed wants to encourage spending and lending so it keeps its rate low. But this is rapidly changing. For example, during the week of January 7th, the average fixed-rate loan was at 5.09%. This is much higher than the 4.71% the average rate was just one month ago. Furthermore, with the economy showing signs of improvement, there are three main reasons the rate will undoubtedly go up.
First of all, the government program that kept rates as low as it has is coming to an end. The Federal Reserve has been buying up mortgage-backed securities since 2009. Throughout this program, the Fed has purchased over 1.25 trillion dollars worth of assets. This action has tempered rates by creating a market for these “toxic assets.” This program is slated to end on March 31. Then, the Fed will turn the market over to the private sector; they will certainly demand higher rates.
Second, the Treasury’s yield has gone up. A few weeks ago, the yield sat at 3.2% over 10 years, now it is at 3.84%. This represents a 20% rise. Mortgage rates are not directly related to Treasury yields, but the two have an historical tendency to mirror each other. Also, mortgage rates are always higher than Treasury yields because private investors demand a premium. Being virtually risk-free, the Treasury does not. Historically, the difference between mortgage rates and Treasury yields are around 1.7%. Right now, they are at 1.2%
Third, the economy is slowly showing signs of improvement. With these signs, businesses will expand production. This expanded production forces business to borrow more from lenders; therefore, the demand for lending will increase and interest rates will rise. Also, as the economy improves, stocks tend to do better on the market. This will force lenders to compete for stock investment by raising their rates to attract investors interested in maximizing their returns.
All three of these signs combined could cause the average 30-year rate to rise above 6% by the end of the year. And thus, a fall back to 5% is highly unlikely.
With the U.S. housing market implosion, it is nice to know that there are ways to increase the value of your home. And hopefully, you will get more money back from your investment.
Because of the state of the market, buyers aren’t impressed with flashy, unessential improvements. Instead, they are looking for ways to save as much money as they can. Knowing this, there are some improvements you can make to your home that will make it a more valuable commodity.
For example, improvements that lower monthly bills are vital. These include replacing the siding on you home. Fibre-cement or foam-backed vinyl products can recoup around 80% of your cost and lower your monthly heating and cooling bills. Replacing your windows to more efficient ones is a sure-fire way to lower your air conditioning bills. Plus there could be an aesthetic bonus as well, which could increase your home’s value on the market. Although it will be expensive, remodelling bathrooms with newer, high-efficiency appliances will attract buyers. Likewise, a kitchen remodel will have similar benefits. Also, with more and more people opting to stay at home, adding a deck to your home will be a good bonus for your potential buyer.
These aforementioned improvements are a bit on the expensive side. Here are some cheaper ways to add value to your home. Instead of choosing expensive fiber-cement, try using vinyl siding instead. It may not be as efficient as fiber-cement, but it may be an improvement on your current siding. You can also add an attic bedroom. Anytime you add bedrooms to your home, you add value to the home. The dimensions in an attic are small; therefore the cost is small to improve the attic. Likewise, if you have a basement, a basement remodel or upgrade can attract more buyers.
Having said all that, if you do not have the money to invest into your home, you should not undertake an expensive upgrade. Also, you will want to find out if said upgrade will increase the tax you pay on the home.
Navigating this volatile market can be difficult. Specifically, the erratic housing industry, which seems to fluctuate from month to month, scares many people from buying their home. Through January 2000 and April 2006, the average U.S. home price nearly doubled. Since then, the average has fallen 30%. Therefore, protecting the value of your investment is as important as the terms of the loan itself. According to the Mortgage Bankers Association, about 13% of mortgages are behind their payments or in foreclosure. So, the value of your home depends more upon your neighbours keeping their jobs than whether the house has enough bathrooms and parking. Here are a few things to look for when purchasing a home.
Demand depends heavily on the job market. For that reason, purchasing a home in places such as Las Vegas, Atlantic City, or Florida—who depend heavily on tourism during healthier economic times—is not a good idea. Consequently, the average home price has dropped 53% in the Las Vegas metropolitan area in the last three years. So, understand the local economy. Ask yourself: is it slumping as bad, or worse, than the rest of the country? Or is it doing fine even in these bad times.
There are a few ways to answer these questions. First, get a sense of the home supply in the area. You can do this by asking a good real estate agent for statistics about the amount of homes listed for sale and how long it will take to absorb the supply. Anything over six months is a bad sign because, after that, sellers will have to cut prices. You as well, if you wanted to sell your home, would strongly consider cutting the price of your home if no one was to buy it after six months on the market. Furthermore, if it takes six months to sell a home, it is a sign that people are moving away faster than the are moving into this area—a sign of joblessness.
Second, if you don’t want to bother with a real estate agent, take a look around the area and count the “for sale” signs. If there are more than a couple per block, this is a bad sign. Again, if people are eagerly moving away from the area, the prices of homes will fall.
Third, take a look at the job market in the area. One way of doing this is the U.S. Bureau of Labor Statistics provides unemployment numbers by metro area. State and local agencies provide job-market data, as well. One thing you can do is while your looking for “for sale” signs, look for “help wanted” signs.
Always remember: If there is money in the area, jobs in the area, people will want to move or stay in the area. If people want to come to the area, they will buy homes. If people buy homes in the area, supply will shorten and demand will increase. Therefore, the value of your home will retain its value or increase as well.
