Appraisal Articles 2019 Free Appraisal Articles for Appraisers and the Public
If you are lucky enough to find a home, especially in one of the high housing demand states, you should be happy that rates aren’t 8.0% or higher. I know that sounds painful, no one wants to hear that a situation that is becoming worse is not that bad, but I can honestly say that I would be happy with a 4.75% to 5.25% mortgage interest rate. If you have ever taken a 30-year home mortgage with an 8.0% to 10.0% interest rate, like I have, you can put recent increases in perspective.
If you have only been around to see 3.31% to 5.0% mortgage interest rates I’m sorry to inform you that you are out of touch with reality. It doesn’t take much to get back to higher rates, probably not as high as the record 18.63%, but higher than the near 5.0% that we have today. Those who decided to wait for rates to fall may never get another chance to buy or cash out for years. Just FYI I’m not in the mortgage or banking business, so I don’t really care if you take a new mortgage, I’m just being honest about the historical nature of mortgage interest rates.
Through most of my adult life, or since about 1970, mortgage interest rates have been at or above 7.5%. It wasn’t until 2009 that rates came down below 5% following the recession of 2008 or about 39 years later. So, what makes borrowers and potential borrowers think that rates in the short-term future are going to fall again and remain below 5% indefinitely? It’s great to delude yourself into thinking that mortgage interest rates will remain low but there are no guarantees.
A 3.0% mortgage rate uptick would bring mortgage interest rates up to near 8.0%. A rate that high would, at least for a time, create havoc in most real estate markets. It wouldn’t do anything good for the disposable income of many individuals either, and it doesn’t take much to forecast an economic slowdown if it happened. Does that mean it’s impossible? That it absolutely won’t happen? No. In fact, the average mortgage interest rate over time has been about 8.5%, a move to that number would be a move to the average rate.
If the question is, “is it possible” for rates to increase dramatically? The answer is yes. The government would resist a dramatic increase in mortgage interest rates and to some extent they have control, but even the US government doesn’t have total control of the monetary system. You don’t have to be a doom and gloom person to realize that the future is not always ours to control. Rate changes don’t usually happen overnight, they usually creep up 1/4 point at a time.
For appraisers even a 1.0% upward movement in mortgage interest rates can cut deeply into appraisal volume. Buyers and sellers don’t think about the long-term nature of mortgage interest rates, and the possibility they will continue up, they focus on short-term movements. So, when rates move up 1% appraisal volume often slows. Buyers question whether they can afford to pay the additional interest and some put their plans on hold. When rates increase property owners also question whether or not they want to take cash out of their home equity since they will have to pay more due to the higher mortgage rate.
The higher mortgage interest rates go, the greater the negative impact to real estate markets. In the past when mortgage interest rates hit double digits (10%) mortgage costs became more than a physiological barrier they simply made mortgages unaffordable. It’s difficult to guess what comes next in our market, but there doesn’t appear to be any downward pressure on mortgage interest rates in the middle of 2018.
For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas (http://www.appraiserlasvegas.com), or http://www.horizonvillageappraisal.com, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/
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