The Federal Reserve voting to increase the interest rate on a Wednesday – as it did last week – doesn’t mean that mortgage rates will rise on the following Thursday.
Mortgage interest rates can best be monitored by the 10-year Treasury Bills. The yield of those bonds will dictate the mortgage interest rate.
However, all of these rates are linked as they use economic factors to determine their rates. Rising rates lift all rates.
When the prime rate was 20 percent in 1980, mortgage rates were 16.3 percent. In 1988, the prime rate was at 10 percent and mortgage rates at a mere 10.48 percent.
As time went by, rates were reduced, as in 2004, when prime hit 5.75 percent and mortgage rates were hovering around 5.83 percent. And in August of 2016, primes checked in at 3.25 percent and the mortgages were available at 3.44 percent. What a strange set of coincidences.
In short, those who feel the Fed increasing rates does not affect mortgage rates can take all of the T-Bill, bond yield jargon with them to the bank of their favorite mortgage lender and see if you can get a better deal.
Rates are on the rise, and the Fed will increase the rates again this year.
Based on the 37 years of comparisons above, I would wager that mortgage interest rates will not decrease on this news. On a loan of $176,000, an increase of three-eighths of a point would cause a monthly payment on a 30-year, fixed-rate mortgage to skyrocket by $47 per month.
Another three-eighths, another $47 per month. Add a couple of hundred dollars to the loan amount and another bump in rates, and soon we are talking about some real money.
As Smokey Robinson, the wise economist of the 1960s, wrote: “Get Ready. Get Ready.”
Sale of the Week
Determining the listing price for a residential property is a formidable task, void of scientific methodology and the slightest error may prove costly for the seller.
In commercial real estate, the process is more defined, based on the zoning, best use, current rent rolls or income versus expenses. There are cap rates and ROI formulae that dictate price. If the numbers do not meet certain criteria, the property will not sell.
In residential properties, comparable sales are often used to determine the value of a property that is being sold for owner occupancy rather than for the use of the lot – a teardown – or for investment rental property.
In days gone by, a seller and his Realtor would have looked at the recent sales of comparable houses, developed a price per square foot and valued the new listing at an amount slightly more than the most recent, highest (of course) sale.
In today’s market, there are more factors that require consideration.
For example, the age of the house is more of a factor than in recent years as the building permits are running at about 500 percent over the years coming out of the Recession. As many have joked, if the state bird is the mockingbird, the city bird is the crane.
And they are everywhere.
Newly constructed homes are commanding higher prices than existing homes, even homes that have been renovated recently. A home with a complete 10-year-old renovation cannot compete with the new houses and should be priced below the numbers that new construction is getting in the area.
It appears that there are magical numbers for some homes, as was the case with Forrest Moody’s listing at 1506 Gartland.
He priced the home at $619,000 and had numerous showings with no offers. In today’s real estate world, 10 days on the market with double-digit showings – a double double – spells trouble. And while all sellers want feedback, the feedback is “We don’t want it!”
In the case of 1506 Gartland, the house had been updated and showed well. While it lacked shiplap siding, Moody, who is with Redfin, combatted this egregious shortcoming with fish-scale shingles. A fish scale should trump a shiplap.
The home has 2,276 square feet with three bedrooms, two full baths and a powder room for those in need of powder application.
The grounds were impeccable with a backyard English garden waiting for sun and buyer.
With no takers at $619,000 and the double double upon him, Moody reduced the price to $599,000. Immediately, Shelly Bearden, one of Worth Properties’ finest, swooped in ahead of countless other fish mongers and sold the property for the list price.
As the saying goes, “The market has spoken.”
Richard Courtney is a real estate broker with Christianson, Patterson, Courtney, and Associates and can be reached at [email protected].