The Advantageous Mortgage Window: Plan and Act Now to Get Finances Aligned for a Mortgage
Would you like to know when an advantageous mortgage window opens? Did you miss the historic low rates at the end of 2020 and into early 2021? It benefited well those who were re-financing. But many new buyers paid premium prices or bid up prices to buy a home. Get prepared for the upcoming advantageous window! Now may be the time to scrap any extra spending to bolster and maximize mortgage preparedness. A number of factors are coming together for those who are prepared. Be prepared to minimize DTI, maximize down payments, and focus on mortgage availability. Take a look at the convergence of these factors..
We noted materials price pressures boosted housing prices over the last year. Lumber prices alone added $25,000 to $35,000 for each new home by early 2021 and recently increased costs even more. The pressure likely will abate and possible reverse in 2021. [Note: In our June 2021 Update, we note lumber prices fell almost 60% from the peak two months earlier. As predicted, the price increase from lumber has substantially corrected. It has been more than cut in half]. Will the reversal have have a short term downward pressure in new home prices after FOMO bidding? Will it have a long term downward pressure or help stabilize pricing while expanding inventory of homes available?
While it is unfortunate, the end of forbearance in mid 2021 will boost foreclosures for those unable to re-cast a mortgage or begin normal payments. Opportunity for those prepared may result in many more housing choices. Distressed homes get sold by foreclosures/lenders or in short sales.
Federal Reserve Plans
On Wednesday March 17, the Federal Reserve announced it would maintain a zero percent outlook on short term interest rates. The target range of the benchmark federal funds rate remains at zero to 0.25%. The target hasn’t changed since March 2020. In addition, the Federal Reserve sees the recent inflation uptick to be short lived. If true, recent interest rates increases will moderate or slightly reverse. The Federal Reserve expects to maintain this outlook through 2023. No guarantees come from the Fed for low interest rates. The Federal Reserve also announced continuation of asset purchases. The asset purchases include mortgages. Asset purchases keep end demand for mortgage paper (making loans) high and profitable for lenders. As a result, these actions keep mortgage rates lower for borrowers. [July update: As predicted, after peaking in early 2021, Treasury rates have fallen and mortgage rates also have fallen].
Add all these together and the outlook for optimum rates and lower prices will play out in late 2021 through mid 2022. Stay tuned for updates as time passes. For more help on the factors and pricing of mortgages and methods to be prepare for the advantageous purchase window pick up your copy of Winning Mortgage Winning Home now.
The Fed’s Statement and Fed Members’ Votes
“Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak,” the Federal Open Market Committee (FOMC) said in its policy statement Wednesday. “Inflation continues to run below 2%.” Seven of 18 officials predicted higher rates by the end of 2023. Only five of 17 predicted higher rates at the December meeting. A slightly larger group than before within the Fed see an earlier start to the end of ultra-easy monetary policy.