Your Mortgage: Rising rates vs. low inventory

Matt Madison from Fountain Mortgage talks us through this ever-changing mortgage market.

By Matt Madison

It’s been a wild week around the mortgage world.  Rates are rising at a decent clip for the first time in a while and home inventory supply in Kansas City is at a ridiculously low level.  I’m here to tell you not to panic and that this is the perfect time to relax.  It’s going to be okay. Rates will level off, and Homes are going to be put on the market very soon.  It’s almost spring, and home buying springs eternal!

So instead of hitting the freakout armageddon button, what do I recommend?  First, I’m here to tell you that it’s not too late to take advantage of those stellar rates even though they’re going up.  Yes, even though rates are going up.  I understand that maybe you’re frustrated because you didn’t pull the trigger on that refinance yet, but don’t obsess over the fact that you missed the very bottom. Nobody can ever catch it except in the rearview mirror.

As an example, let’s look at the differences between two rates in context on a 30-year term:

In other words, you’re understandably frustrated because you didn’t lock in that $790 payment, but in the grand scheme of things, a $53 difference is not the end of the world.  Today’s rates are still among the cheapest rates the market has ever seen. Side note:  can you imagine paying 15.4% on a home mortgage?  40 years ago today, that was the average mortgage rate! Crazy…

But let’s say that the refinance scenario doesn’t apply because you’re looking for a move-up home, or perhaps you’re a first-time homebuyer.  Rates are climbing, and inventory is shrinking, but if you’re asking permission to hit that freak-out button, the answer is still no.  We’re actually nowhere near DEFCON 5.  So what should you do if you’re in that situation?

Last week in the office (and on our Zoom calls- we are still in a pandemic after all), the home inventory dilemma dominated the conversation.  Even in our meetings with realtor partners, that’s all they were opining about. When I asked one of my partners how I could help them this week, they replied, “You can’t do anything for me this week unless you have a bunch of houses you’re getting ready to sell”.  As you can see, this has to be quite a frustrating time to be a realtor.

So you’re not the only ones who have taken notice.  It’s a crazy market, and we all see it.  There’s a huge backlog right now of people who are pre-approved and ready to buy though, so what gives?  Our company marketing guru last week likened this situation to one huge staring contest.  The question is not who will blink first, buyer or seller, but WHEN will they blink.  And when they do?  Gird your loins, because it’s going to be mayhem.  If you’re waiting to enter the fray because you don’t want to be the one who blinks first, are a buyer having a hard time paying more than list price, or someone longing for the days of abundant inventory and being able to take your time buying, consider the following. Let’s say (for my example’s sake) that over the next year rates rise to 4.25% on a 30-year note. Check out what that means in the example below:

Again, all hypothetical scenarios, but check that out!!  By waiting a few months, your buying power decreases by $42,000 – and so what happens then if home inventory is still scarce?  Now you’re kicking yourself because you should have thrown your hat in the ring at 3.00%.

We may be a bit numbed by the perfect financial real estate storm we’ve been in, but times will change. They always do, and it’s what you do now that matters most. My advice to all of you is to not be afraid to make the first move.  Don’t touch that freakout button, no matter how tempting.   In my household, we have a motto:  act out of hope, not out of fear.  So I urge you to take a deep breath, relax, and act out of hope.

For more information on how you can make the most of this crazy housing market, give me a call at 913.708.5239 for a personal consultation.

*Interest rates are given as examples only and not as an offer of financing. Current interest rates are subject to change daily and those shown are indicative of market conditions and individual qualifications and will vary upon your lock-in period, loan type, credit score, purpose, and loan to value.