Borrowing Environment to Remain Favorable
SMITH BRAIN TRUST – With a possible three or four Fed rate hikes anticipated next year, look for mortgage rates to edge higher in 2018, says finance professor Clifford Rossi at the University of Maryland’s Robert H. Smith School of Business. But don’t rush to beat such increases. “The borrowing environment will remain favorable to prospective buyers over the next year,” he says.
Quoted on mortgage interest rates and the broader housing sector in The Mortgage Reports, Rossi notes, “Since mortgage rates are less driven by changes in short-term rates than by intermediate-term rates, such as 5- or 7-year Treasurys, Fed rate hikes have not roiled mortgage rates.” He points to a general flattening of the yield curve for Treasurys, forecasting the curve will “remain relatively flat over the coming year and as a result this should translate into a reasonable period of stability for mortgage rates.” With economic growth expected to pick up modestly and unemployment expected to remain low, he sees a 30-year mortgage rate increasing by roughly 25 basis points in six months and perhaps as much as 50 basis points in a year.
Tax Bill Implications
Rossi, author of "A Risk Professional’s Survival Guide," has given expert testimony on Capitol Hill on risk governance and housing policy. He says Congress’s pending tax bill would likely dampen home-buying in 2018, but with limited effect. "Reductions in state and local tax deductions, mortgage interest deduction caps and limits on capital gains associated with housing will weigh on prospective borrowers’ minds,” he says. But ultimately, the changes would have "limited impact on the market as homeowners adjust and as offsets from lower tax rates kick in.” Meanwhile, he adds, “lenders may find 2018 to be one of the most favorable business environments from a regulatory perspective.”
Rossi says conditions in 2018 will remain favorable for financing a mortgage. And though home prices continue moving upward, there are plenty of prospective buyers looking to enter the market.
He advises buyers to “take time and investigate loan programs, like an FHA loan, to best suit their needs. “Borrowers in the best position to obtain the best mortgage terms will be those with FICO scores over 660, loan-to-value ratios less than 80 percent, and debt-to-income levels of 43 percent and below.”
What should prospective buyers for 2018 be doing now? While the mortgage process has improved over the last decade, it remains highly complex and fraught with pitfalls, especially for first-time buyers. A good real estate agent and a mortgage lender can make it easier to navigate the process. Home-buyers should seek to set a reasonable budget to cover the cost of the mortgage, taxes and insurance; an emergency fund for inevitable repairs and improvements, and savings.
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