One of our buyers closed last month with a 3.87% interest rate. We saw many sub-4% loans the past several months, though rates have now climbed back above 4.6%.
Let’s imagine hypothetical first time buyers with a toddler who closed this year with an interest rate below 4%. Fast forward 5 years to 2015 and imagine they now have a 6 year old and a 3 year old. The career is going well, income is up, savings account is healthy, cars and student loans are paid off, the economy is good and the house is starting to feel a bit small.
This is the profile of a typical move-up buyer in Austin. Move-up buyers play an important role in the real estate market by providing resale housing stock for first timers to buy and, simultaneously, providing demand for the mid and upper range homes in Austin. We need this “move-up churn”. It’s good for the real estate market and Austin’s economy.
But now let’s also imagine that in 5 years from now that the best interest rate available on a new mortgage is an unfathomable 6.75%. Don’t think it will go that “high”? That’s not ever a “high” interest rate! And yes, it will get that high again – eventually. How hard will it be for a move-up buyer to let go of that 3.75% loan on the current home? Very hard, I’m going to bet.
I think the psychological urge to hold onto that loan is going to be very strong. And I think it will factor into the move-up decision more than we may currently realize.
Loan rates are back in the 5%s and may keep falling. I’m not sure if this will create any notable demand increases in Austin, but buyers and investors do at least perk up when rates drop below 6%. On the downside, the “number of loans” limit recently fell from 10 to 4, meaning if you already have 4 or more real estate loans, you cannot obtain another conforming real estate loan. This has stopped at least one sale I know of.
From a Realtor email newsletter I receive:
For the first time since early spring, mortgage rates have fallen below the 6-percent threshold.
Freddie Mac reports that 30-year fixed loans came in at an average of 5.93 percent this week, down from 6.35 percent a week ago and 6.31 percent at the same time last year.
A borrower taking out a $200,000 mortgage at 5.93 percent would pay $1,190 for monthly principal and interest payments, which is $54 less than the payments on last week’s rate.