The Federal Reserve decided to forgo raising interest rates this September, but many economists still believe a hike is coming either in late 2015 or early next year. Once the central bank does decide to make its move, consumers should expect it to get more expensive to buy a new home.
In fact, the Mortgage Bankers Association is forecasting the average interest rate on a 30-year-fixed rate mortgage in 2016 will be 4.8%, up from a forecast of 3.9% in 2015 and 4.2% in 2014. The rate increases are just one small piece of the housing market puzzle. “Employment, household formation rates, and other economic fundamentals make a more significant impact” on overall market conditions, Mike Fratantoni, chief economist for the MBA, said in an email.
For example, housing prices are likely to rise next year, too, as improvements in the job market enable more people to purchase homes and deplete the current surplus of properties in many areas.
Overall, however, “it is true that if a consumer who is ready to buy a home can move now during a period of low rates, that consumer will see a benefit,” Fratantoni said. But that’s not to say the potential rate hike should expedite everyone’s housing search. There are also personal factors prospective homebuyers should consider when deciding to buy, he said.
Getting Ready to Move in (on a Mortgage)
Generally, consumers should be thinking about buying a home if they plan to stay in one place for at least five years and their financial house is in order.
Before you go out shopping for a mortgage, you may want to make sure you can meet down payment requirements, handle monthly mortgage payments and safely cover other ancillary costs, like real estate agent fees, property taxes, home insurance and repairs, to name a few.
You also want to be sure your credit score is in peak condition. Scores of 740 and over generally earn the best terms and conditions on a mortgage, so, if you fall below that line, you may want to work on improving your standing before filling out mortgage applications. You can pull your free annual credit reports each year at AnnualCreditReport.com or see your credit scores for free each month on Credit.com to learn where your credit currently stands.
Ultimately, if you decide you aren’t ready to move forward with a home purchase now, you shouldn’t feel too bad about the missed opportunity. “It is important to keep in mind that even after an increase, rates are likely to remain near these historical lows for the near term,” Fratantoni said.
More on Mortgages & Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Get Pre-Approved for a Mortgage