Ask PJ: What market volatility actually means for buyers and sellers

Let’s address the elephant in the room for buyers and sellers alike. By this time I’m sure all of you are aware of the rising mortgage interest rates we’ve seen this past year. In mortgage giant Freddie Mac’s most recent survey, they stated that the 30-year fixed rate mortgage jumped 19 basis points to 4.90 percent. This is the highest they have been in seven years. Yikes!

Before you start to worry too much, let’s dig a little deeper to see how this can affect your buying power and the overall market.

In the graph above, you’ll see how a .25 percent increase in mortgage rates can affect a buyer’s power when purchasing a $400,000 home. Assuming you’d like to keep roughly the same monthly mortgage payment, each quarter percent increase in rates will affect your buying power by $10,000.

The good news: Despite the Federal Reserve raising the federal fund rate in December, the 30-year fixed conforming rate has recently gone from 5 percent to 4.5 percent according to BankRate.com.

What’s caused this drop in rates? There are many reasons, to include: Global geopolitical pressure and uncertainties such as trade wars, the advancing of Brexit in the UK, plummeting oil prices, the consensus among many that the Federal Reserve has acted too quickly in increasing interest rates and evidence of a slowing U.S economy, with many predicting a U.S recession by 2020.

Happenings like these have caused financial market uncertainty. Investors both in and out of the U.S. look for safety in such things as U.S. Treasuries, bonds, and gold, to name a few. As money enters the U.S. Treasuries, it drives the rate of return down.

What to watch? The stock market and the 10-year T-Bill; when folks leave one they often go to the other. The 10-year T-Bill has decreased recently from 3.24 percent to as low as 2.43 percent (25 percent), the Dow has recently decreased from 26,951 to 21,712 (19.43 percent). The 30-year rates generally respond to the 10-year treasury rate.

As a buyer, now would be a great time to reach out to a lender to get pre-qualified. Or, if you were pre-qualified earlier in 2018, you now may be able to afford a price range that was just out of reach with the higher rates then. We work with some of the best lenders in the industry who can qualify you very quickly, free of charge.

As a seller, this is encouraging to see because buyer activity is likely to increase with this new window of opportunity in the winter market. Remember, January, February and March are our favorite months to list a home!

If you’d like a question answered in my column, please email to [email protected]. You can also call me directly at 703-960-3100. Visit poolebraunteam.com to learn more about our team and see our current listings.