I was just reading this article on rates on CNN’s website and it briefly discusses how the Federal Reserve (the Fed) Interest Rate* impacts mortgage rates. Or rather doesn’t. The story quotes a survey that states “People looking for homes say they would be “anxious” about mortgage rates going up”. It conveniently doesn’t say how many people said that, maybe it was only 3 out of 1,000. Why are they anxious? Probably because other people are telling them to be.
It’s an interesting quote to cite, home buyers being anxious, it’s scary sounding and gets your attention. I think though it goes along with the myth that lots of people actually care about or understand mortgage rates. Yes, that’s right, you read that correctly. People generally don’t care what the mortgage rates are. Unless they are actually buying a house. Then it can matter quite a bit because mortgage rates can greatly affect a buyer’s monthly payment cost and if rates skyrocket, that can have an impact on the prices of homes.
So, if rates can have a huge impact on the cost, why on Earth would I say people don’t care about mortgage interest rates? Because mortgage interest rates do not motivate people to buy houses if they are not currently in the market to buy a house. As for understanding mortgage rates, again, unless someone is in the home buying mode, they really aren’t paying attention to them at all and the options for mortgage products and misinformation out there in the world is mind boggling.
Yes. Interest rates affect cost, but the scare tactic of “hurry up and buy now before they go up!” is ridiculous, does not work. The “hurry up and buy now” message was spouted everywhere in 2003-2006, which was not a great time to buy (it was a great time to sell though) as home prices shot through the roof, but the industry said hurry up and buy anyway. From 2007 until 2010 as the market was falling the industry said “house prices are great, interest rates are dropping to historically low rates, hurry up and buy!”. From 2010 to 2012 the industry said “hurry up and buy now” because prices are at the bottom of the market and won’t go lower and rates are still historically low!” From 2012 to 2015 the industry said “hurry up and buy” because the market is on the upswing and “home prices are rising so if you wait it will cost more even with these low rates”.
The “hurry up and buy” message has been repeated in every single type of market so often that the message is meaningless and frankly, I think it causes our industry to lose credibility when we repeat it. Just hurry up and be quiet about rates going up or down, how about that?
The 2015 Profile of Home Buyers and Sellers report that NAR released at the end of 2015 reveals just why I say rates do not motivate buyers to buy. When buyers who recently bought homes were asked why they bought their home when they did, 73% of them gave the answer “because it was the right time for me, because I wanted to or because I had to”. For those 73% of the people mortgage rates did not influence their decision. Only 9% of them said the currently available mortgage options were the reason they bought.
Yes, rates affect a buyer’s cost and rates will probably “go up”. But even if they do, what does “go up” mean? 4.25% instead of 3.85% in 2016? No one knows for sure what will happen, all I know for sure is what historically, actually happened. In 2014 the rates “went up” to an average 4.17% over the average 3.98% they were in 2013. So sure, they “went up” and sure, saying “rates are rising” sounds scary, but going up 0.19% isn’t much of a jump to be overly concerned with. Oh, and then the next year, after those rates went up to an average 4.17%, what was the 2015 average rate? 3.85%.
Looking back further, in 2006, one of the best years ever on record, where buyers were still fighting over homes and submitting competing offers over asking price, the average mortgage interest rate was 6.41%. Rates didn’t affect their decision to buy.
The “hurry up and buy” message over interest rates did not influence the masses to do anything in the recent past and it won’t now. Home buyers will buy when they want to or have to. That’s it. It is our job as Realtors to educate them on what rates mean and how they can impact them, to help them find a mortgage that is right for them when the time to buy is right for them.
Because mortgage interest rates going up or down do not motivate people to buy houses. Even though the endless 24/7 media cycle and the real estate world try really, really hard to make it happen, it’s really all just speculation by talking heads to fill air time. So please, just stop.
If you’re thinking of buying or selling a home, call us at 717-291-1041 and one of our Friendly and Helpful Realtors will be happy to answer any home buying or selling questions you have!
Realtor, Associate Broker, e-Pro
Weichert, Realtors – Engle & Hambright
*The Federal Reserve Interest Rate is the rate which banks lend money to each other, check out the linked article for more on that if you like.