One year ago this month the VA 30 year fixed mortgage rate was 3.75. Today, that rate is 4.5%. Similar increases have occurred with all mortgage programs. A 15 year fixed conventional rate was 3.5% and today’s rate is 4.125. The popular FHA 30 year fixed rate has jumped from 3.75% to 4.5%. With less than 10% down, FHA loans now also require mortgage insurance for the entire 30 year life of the loan whereas previously it was cancelled after five years and 78% loan to value. Interestingly enough, conventional rates have not jumped up as high. One year ago, 30 year fixed conventional was 4.125% and today it is 4.5%. Without question, these interest rate jump ups hit the entry level and one step move-up market the hardest. I’ve never worried about the conventional mortgage rate as higher end buyers frequently have financial resources that allow them to buy down rates and avoid mortgage insurance by putting 20% down. On a $400,000 mortgage, avoiding mortgage insurance can save you $9,000 plus over ten years.
These rate increases will definitely make it more difficult for first time home buyers to enter the housing market. However, they better jump now rather than later in the year as more rate increases are inevitable with anticipated rates reaching 5% or higher by the end of the year. I recognize that our historically low rates couldn’t, and shouldn’t, last forever but I also believe that homeownership, which begins at the affordable level, is the backbone of any socially vibrant community. So my recommendation is buy now and lock your loan. There is more inventory in the market to select from. Anchorage has the highest number of single family homes listed in MLS than in the past five years. And the first 2018 reports from MLS show a 5.89 % drop in average sales price, the biggest drop reported since the real estate recession of 2008. But buyers should not be wary of Alaska’s mild recession. As Neal Freid from the Department of Labor has pointed out, recessions don’t last more than two to three years and ours is in its third year. It takes will power to buck the trend but with more inventory, lower prices and the continued real threat of increased interest rates, now is a good time to buy a home because of the cost of home ownership is not the purchase price but rather your mortgage interest rate over the life of the loan.
There are some good buying opportunities out there, including entry level condominiums which have remained stable in value at $212,000 the past couple of years. Just make sure there are adequate reserves for maintenance and repair and no looming special assessments. Any home priced under $500,000 is also a good buy if it has been well-maintained and had some cosmetic renovation. New home construction can’t begin to replace a $500,000 home for less than an additional $75,000 due to increased costs for labor and materials in 2018. Also, look for any new construction standing inventory in any price point. Builders want to get rid of any leftover 2017 inventory so they can get ready for spring digs.