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Homebuyer’s Guide 2016

Smart Moves to Make Now

The real-estate market in the second half of 2016 favors sellers, but mortgage rates likely will remain low at least into 2017. Banks now fix up foreclosed properties, so they can charge more for them in competitive markets. However, whether they represent a bargain depends on where you live.

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If you’re considering buying a home, then you should take a deep breath. Experts say you likely will see rising prices and fewer choices.

However, that doesn’t mean that it’s all doom and gloom. Experts with whom we spoke don’t expect mortgage interest rates to rise much from their historic lows through 2017, which makes borrowing money more affordable.

Furthermore, housing researchers expect that the number of homes that are for sale will increase as 2016 moves into 2017, which will give buyers more of a choice when they search for their next residence.

INTEREST RATES. Greg Fischer of Pinnacle Mortgage says 2016 is a continuation of the same cycle that he’s seen in his 10 years in the mortgage-lending business: At the end of every year, financial experts predict that mortgage interest rates will increase. Often, they do—at some point during the year. However, by the end of the year, mortgage rates tend to decrease again and wind up about where they were 12 months earlier, Fischer says.

The lesson here: Homebuyers shouldn’t worry too much about mortgage rates in 2016, Fischer says. Yes, they might rise a bit, but he predicts that mortgage rates will remain close to historic lows throughout 2016 and most of 2017. Will they go higher than they were at the beginning of 2016? That’s likely, he says, but “no explosion” will occur.

Fischer says any increase will be so small that it won’t affect most homebuyers. Bruce Ailion of Re/Max Town & Country agrees. Despite seemingly annual predictions of an increase in mortgage rates to a range of 4.5 percent to 5 percent, Ailion believes that rates on a 30-year mortgage, “if they rise, will rise less than [0.5 percentage points] through the end of the year.”

A 30-year fixed-rate mortgage of $200,000 in spring 2016 could be had at an interest rate of 3.71 percent. Your monthly mortgage payment, without insurance and property taxes, would be about $921. If the rates increased 0.5 percentage points to 4.2 percent, then your monthly payment would be about $978. That’s an increase of about $684 per year.

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Ed Hoffman, who is the president of Wholesale Capital, which is a mortgage lender, also believes that mortgage rates will remain flat through 2016. However, he says the days of interest rates of 6 percent to 7 percent for a 30-year mortgage aren’t necessarily gone for good. “My crystal ball says definitely no sooner than 2017,” Hoffman says. “In reality, I don’t see rates hitting 6 to 7 percent for 3–5 years. If someone is considering buying a house, they certainly shouldn’t hold off.”

When Federal Reserve raised the Federal Funds Rate in December 2015 by 25 basis points, which boosted that rate to 0.25 percent, many financial experts predicted that other interest rates, including mortgage rates, would follow. Instead, mortgage rates decreased. According to Freddie Mac, which is a public mortgage lender, the average interest rate on a 30-year fixed-rate mortgage was 3.97 percent in January 2016. As of press time, it stood at a 2016 low of 3.58 percent.

The reason? A higher Federal Funds Rate doesn’t equal higher mortgage rates necessarily, says Jeremy David Schachter of Pinnacle Capital Mortgage. Mortgage rates are determined by mortgage-backed securities that are connected indirectly to the yield on 10-year Treasury notes. Typically, mortgage rates decrease when yields on these Treasury notes decrease. That happened in early 2016 because of the struggling international economy and the U.S. stock-market decline. We couldn’t find an expert who would predict how much higher the Federal Funds Rate would have to be to trigger a mortgage-rate increase.

“The economy overall has improved, but it’s still not robust, so I don’t think interest rates will rise much higher,” Schachter says. At the same time, the international economy plays a big role today, which means that oil prices, concerns over China’s economy and terrorism all weigh on the global market. “That affects mortgage rates” he says, and international uncertainty tends to keep rates lower.

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