Will Interest Rate Lock Impact Charleston SC Real Estate In 2017?
Projections for interest rates in 2017 vary, but almost all of them indicate that we can expect a rise in rates. What kind of impact will that have on Charleston SC real estate?
I discussed this in greater detail in a previous post, and today I want to dive deeper into a term I mentioned: Interest Rate Lock.
This is not to be confused with locking in your interest rate while in the process of securing a mortgage to buy a home.
This Lock has to do with home owners and the interest rate they have on their current mortgage.
I wrote about a misconception many home owners have regarding the amount of equity they have in their home–the majority of home owners in the US underestimate how much equity they have.
This is something that is keeping many would be sellers from selling their homes, especially in a market that very much needs more inventory.
Interest Rate Lock ties into this because it is another factor that can have an impact on inventory in the market.
Because so many home owners bought or refinanced in recent years, they were able to take advantage of historically low interest rates.
Interest rates rising in 2017 is not necessarily a bad thing–they will be coming up from historic lows, so they will still be low compared to past years.
However, if they rise enough, it could keep would be sellers from selling because their new mortgage rate would be higher than their current rate.
Right now, that doesn’t seem to be that big of a factor. But, should rates rise as much as is projected, then Interest Rate Lock starts to become a thought in sellers heads.
Some projections have interest rates increasing by as much as nearly a full point. This will, along with rising home values, diminish some of the purchasing power buyers have.
History has shown us that even when we have had dramatic rate increases in a short period of time, it doesn’t have that much impact on home values. This graph shows what happened the last 4 times we saw a dramatic increase in interest rates and how the market was affected:
Because of the real estate market crash a back in 2007-8, many home owners found themselves with negative equity. As a result, over the last decade we have seen a change to the average length of time a home owner stays in their home.
It used to be that people would only stay in a home on average for around 6 years.
In recent years that number has crept up around 10 years. With the market fully recovered and home prices continuing to climb, you would think that would indicate a strong pent up seller demand.
But the same problem keeps plaguing the real estate market–lack of inventory.
So, where are all the sellers?
It is likely many have refinanced and are enjoying the historically low interest rate they received.
There seems to be some reluctance to buy the next home if it isn’t absolutely necessary.
Right now, with rates still close to their historical lows, it would make sense to make a move–before interest rates go up. Home prices also look to continue rising in 2017, another factor sellers need to keep in mind.
Although rate lock is a concern, how much of a factor will it be in 2017?
According to Mark Zandi, Chief Economist at Moody’s Analytics, Rate Lock shouldn’t be an issue until rates are well over 5%–which according to projections won’t be for at least the next year.
Another factor that ties into rate lock is the fact that for many Americans home equity is an important factor for retirement.
Many home owners that refinanced in recent years took on shorter mortgages in an effort to pay off their home faster.
For these home owners, they appear to be locking themselves into their current home and selling is not a consideration.
This could be an opportunity lost, but it comes down to a personal decision that they are most comfortable with.
What it comes down to is a segment of the market lost that is very much needed.
It is also why it is important to get this information out to all home owners–so they can make a truly educated decision regarding their future.
If you are thinking about buying or selling Charleston SC real estate be sure to visit my Pam Marshall Realtor website.