If you have not been considering a real estate transaction recently, this may come as news to you, but the price for mortgages is on the rise. The question, however, most often posed by borrowers in these volatile times is whether the salad days of the sub-4.5% mortgage rates are well behind us.
The answer is one that, in general, disappoints. With the economy on the mend and treasuries losing their luster, conventional wisdom is that we have begun the rise to a more normal rate environment. All signs are pointing to 5% or higher for Fannie Mae and Freddie Mac loans becoming the new near-term reality. We could see even higher rates toward the end of the year. So what is a borrower to do?
To begin with, partake in any grieving that you need to do and move on. A real estate transaction occurs at a given point in time. Everything from the price or value of the property to the mortgage rate is a function of the time in which the transaction takes place. In short, it does not matter what rates were in October of last year and to lament is a waste of time. What matters is the rate available today and whether that rate meets your overall objectives.
Now that you have accepted that rates are what they are, take a minute to actually look at rates from a historical perspective. Rates in the 5% range are still amazingly low if you evaluate them in the context of the past decades. Understanding this and the fact that rates will likely return to a level more in line with the historical average should dispel some of the angst over not hitting the bottom. Just being at the low end of the trough should be enough to be thankful for.
Finally, remember the reason that rates are increasing is because equities have become a more favorable place for investors to out their money. This is an indicator of a stronger economy. If you have seen the double digit depreciation to your investments during the Great Recession, you should be jumping up and clicking your heels together with joy as these assets regain their value. Remember you cannot have it both ways and some money in your pocket due to the appreciation of equities that you hold could dwarf the benefit of a lower mortgage rate.