Dollars and Sense

Tolbert Rowe brings his thoughts on financing and his common sense every month.

Mr. Rowe is Vice President/Lending for Bay Capital Mortgage Corp. with offices in Easton and Annapolis. He has lived in Caroline for his entire life and supports the county by volunteering in a variety of ways. He currently lives near Greensboro with his wife Jeanne

and daughter Kelsey.

“Mortgage interest rates crack below 6% for the first time since September of 2022” as reported by Freddie Mac in late February. This milestone is double what interest rates were 4 years ago. But good news is good news, especially for the anemic real estate market.
Freddie Mac takes an average of interest rates for owner occupied primary residence mortgages throughout the country. There may be geographical variations of rates, and the amount of fees paid (points) to secure that rate. So, the rate you are quoted for a property in Maryland could be different than the rate quoted for a property in California, and very often is.
But will interest rates continue to fall, stay in the 6%-6.5% range, or increase and push closer to 7%? Since I am writing this several weeks before the Caroline Review goes to print, and “Operation Epic Fury” is in its second week of implementation I will go with the safe answer,” maybe” on all three.
A major factor affecting long term mortgage rates is inflation, or the loss in purchasing power of a dollar at some point in time in the future. A zero-inflation rate indicates that a dollar a year from now will have the same purchasing power as a dollar does today. If you can buy a widget today for $1.00 that same widget will cost $1.00 a year from now.
But if the inflation rate is currently 2% the widget you buy today for $1.00 will cost $1.02 one year from now. This 2% inflation rate is what the current Jerome Powell led Federal Reserve considers a “level” or preferred rate of inflation. This goal has driven their decision-making regarding lowering or raising the Federal Funds rate and ultimately other interest rates, such as mortgage rates and the Prime Rate.
Why do I bore you with my attempt to explain inflation as it relates to mortgage rates? “Operation Epic Fury” and its impact on the flow of oil will be a major influence on the rate of inflation and how the new Federal Reserve under new Chairman Kevin Warsh reacts. Through the “war,” the cost to American families will be noticeable. Filling our tanks will cost more for the near future.
New Fed Chairman Warsh got the job because of his devotion to POTUS Trump. He is likely to find a way to justify lowering the Fed Funds rate regardless of how high inflation may go. We will soon find out how codified a 2% inflation rate is with the Warsh Fed, and how dedicated Chairman Kevin Warsh will be to direct Fed actions toward the same goal.
Until POTUS Trump can pull a rabbit out of his USA hat, we will have to adjust our spending appropriately and be prepared that if we are considering buying a home or refinancing our current mortgage, interest rates will remain at or above current levels.
The number of homes on the market has increased over the past six to nine months and prices have leveled off. Sellers are willing to consider reasonable offers and willing to pay some of buyers closing cost for the right offer.
There is a USDA program that allows sellers to pay all of buyers’ closing costs to a maximum of 6% of purchase price. Plus, USDA does not require a down payment. If qualified and with seller contribution you can buy a house with no money. Reach out to me to see if you are eligible.
If you are currently in the market do not get discouraged by an increase in interest rates. Stay engaged and continue your quest. Do not let a .5% increase in mortgage rates drive you to the sidelines to “wait it out”. No one can predict where interest rates will be six months to a year from now. A .5% bump in interest rates will increase the monthly payment approximately $195 per month on a $300,000 mortgage.
I get it that this could be a strain for some, but when you consider what you will or you are paying in rent, budgeting an additional $200 in return for owning a home may not be that much of a sacrifice.
Plus, it is entirely possible, no, I am going to say it is highly probable that interest rates will drop at least .5% to 1% in the next 24 months, creating the opportunity for homeowners to refinance to a lower rate. The mortgage interest rate you get today likely will not be the interest rate you will be paying three years from now.