There Are ONLY 3 Ways Rates Come Down This Year

I'm working with a few first time buyers right now, and the big thing we're looking at is monthly payment rather than overall sale price. And the reality is...payments are tough to swallow. Today's mortgage rates and the overall price of housing are the factors driving the monthly payment situation right now. 

However, it's not just first time buyers that are taking a good look at their monthly payments with a purchase. This is just as much a concern with people who are moving up or downsizing. 

In theory, we can only reduce a price so much to impact a payment significantly. Really, the interest rate of the mortgage is the biggest driver.

So, that being said, there's only three ways that mortgage rates come down significantly this year.

1. A crisis-like, black swan event

2. The labor market breaks

3. We get back to 2% inflation

I don't know about you, but the first two would be awful to have to live through. And the odds of 2% inflation seem far off, at least where things stand right now.

Our friend/frenemy Jerome Powell had this to say...and my interpretation is that rates may not see significant movement downward for a bit.

“So, as you know, as we've reduced our policy rate 100 basis points, longer rates have gone up—not principally because of expectations about our policy or about inflation. It's more a term premium story. And you know it's long rates that matter for housing, so I think these higher rates probably hold back housing activity to some extent if they're persistent; we'll have to see how long they persist. So, you know, we control an overnight rate. Generally it propagates through the whole family of asset prices, including interest rates, but in this particular case it's all happened at a time when, for reasons unrelated to our policy, longer rates have moved up.”

Here's the bottom line: if you're a home buyer today, there are things that can be done to help improve your monthly payment situation with a purchase right now.

3-2-1 or 2-1 Buydowns: these are meant to help you scale into the payment at the full amount. Here's the thing: you have to qualify for the loan at the full payment amount. I often suggest folks make the full payment, putting the difference between the full payment and the lower amount into savings or just paying the extra toward the principal. This way, you work to get ahead (with cash savings or reduced principal) and are used to the full payment after the graduated years are done. Often, these types of buydowns have the biggest impact on your monthly payment. If rates come down, you have the ability to refinance for the lower permanent rate. 

Permanent Rate Buydown: this is paying for points up front and reducing your interest rate for the life of the loan. Depending on your situation, you may not be able to buy your rate down as significantly as with a temporary buy down (chat with a lender about this).

One thing we are seeing is that prices are often more negotiable than they have been in the past, and sellers may be open to paying the cost of your rate buydown. The perfect situation is to get a bit of a break on price and combine that with a rate buydown. 

I'm always here to help! If you're looking to make a move in Canby, Molalla, Oregon City, Wilsonville, Aurora, or anywhere in Clackamas County or the North Willamette Valley, reach out! I can help you connect with a great local lender. 

Get on my calendar here!