Making Sense of the Mortgage Market with Brad Goodenough
How’s the Portland housing market today? Is it true that even if the Fed raises rates, my mortgage rates could go down? What are the most important things to look out for in picking a mortgage lender? Brad Goodenough, Home Loan Expert at Unitus Plaza headquarters, shares his insights to help us make sense of housing.
The Portland Housing Market is starting to settle.
On the whole, the torrid home buying pace we have seen over the last 18+ months has been slowing down due in large part to the shortage in housing inventory. According to the National Association of Realtors, pending home sales dropped for the third straight month in May, falling 0.8 percent. The Commerce Department reports that housing starts fell 5.5 percent between April and May, and housing permits decreased 4.9 percent.
As the market begins to self-correct, many experts are cautiously optimistic about the buyer’s prospects for a few reasons. Despite the recent dip, new homes are still being built at a faster rate than usual to combat the high demand, increasing supply and giving buyers more choices. Rent prices are continuing to rise, making a home purchase more appealing for those weighing their options. Finally, houses have been flying off the market at such a remarkable pace for so long that we are likely to move toward more balanced market conditions.
We’re always hearing about “rates.” What’s the difference between the Federal Funds Rate and the Mortgage Rate?
The Fed Funds rate often gets confused with the Mortgage rate. The Fed makes news every time they raise the Federal Funds rate, but that may not actually affect the Mortgage rate – and in fact, the Mortgage rate sometimes decreases at the same time the Federal Funds rate increases (which we’ve already seen just this year).
The Federal Funds rate is a short-term rate used by financial institutions that may actually fluctuate on a daily basis. It affects mortgage prices, but only indirectly (since it affects the price of borrowing money in general).
The Mortgage rate is a long-term rate used by mortgage lenders based on the Treasury bond market. This rate directly affects how much you will have to pay for your mortgage.
Oh no! The price/rate just changed on the home I’m looking to buy! What do I do now?!
After weighing all the variables and selecting your dream home, the price goes up! What do you do?! First, don’t panic. You still want to buy, and the seller still wants to sell. Your realtor can always help you creatively negotiate to work out a deal that works well for both you and the seller.
As a rule of thumb, to help you quickly estimate how a price or rate change will affect your plans, consider The 10/50 Rule. Assuming a 4% mortgage rate (today’s rate), a $10,000 increase in listing price will equate to about a $50/month increase in your monthly mortgage payments. While $10,000 can feel like a big amount, maybe $50/month is more doable for you in the grand scheme. Relatedly, every $1,000 increase amounts to about $5/month extra. Note that this is only a quick estimation tool based on a 4% mortgage rate. Break out the calculator and work out your specifics before making any decisions.
The rate is the most important part of picking a lender, right?
Not necessarily. Here’s why.
Rates are a commodity driven by the mortgage-backed security (MBS) market. Each lender is likely to have similar rates since the same market forces are at work across lenders.
Think about rates like getting gas for your car – while there may be slight differences at gas stations here and there, they all follow the same general trajectory and it usually doesn’t pay to drive across town looking for a cheaper gas station.
So what is important in a lender?
- Trust. This may be the biggest purchase you will ever make, and the process involves a lot of moving pieces. It’s crucial to find a lender who will work to serve your best interests, period.
- Service. The home buying process involves a lot of paperwork, short time frames, large amounts of money on the line, and a slew of fast-changing variables. Your home loan expert should provide you with regular updates, answer all of your questions quickly and thoroughly, and remain available for fast action in those times of urgent need.
- Local expertise. Choosing the right home involves balancing a long list of variables based on your life stage, goals, interests, family needs, and more – and that only covers your own personal situation. Your prospective neighborhood also plays an important role in your choice. If you’re moving to a new neighborhood, having a trusted partner with knowledge of the area will help make the process easier and more comfortable.
Is it still a good time to buy or refinance?
Yes. The past few months have shown the market slowing down, which can be good news for prospective buyers. This will likely help bring on a more buyer-friendly market as sellers adjust their asking prices to account for the lower demand. Additionally, today’s rates are still very good which benefits both buyers and refinancers. If you have enough money to make a down payment that fits in your budget, now is a great time to buy a new home. And if you want to save money on monthly mortgage payments, it’s a good time to consider refinancing your current home. If you want a trustworthy voice to bounce ideas, call us.
To speak with Brad or your local Unitus Mortgage Home Loan Expert, call us at 503-423-8713 or visit our Home Loans page.
Posted By: Brad Goodenough
About the Author: Brad joined Unitus Mortgage in November of 2013. He began as a dedicated mortgage originator and has developed into a results-oriented sales manager focused on maintaining a high level of service and integrity across the Home Loan team. Throughout his career in financial services he has gained expertise in multiple lending platforms and local housing markets. He owes his success to his first professional priority: to add value to his community by sharing knowledge and always providing honest, reliable information.