Two Scenarios, One Result
With the deadline to raise the federal debt ceiling looming, one of two outcomes appears likely:
One. “The band-aid” solution (also known as “kicking the can down the road”).
Under this scenario, Congress and President Obama reach some cosmetic, convoluted compromise that essentially buys (more) time.
Two. The two parties’ philosophical differences prove insurmountable — at least for now — and the U.S. government has to issue temporary IOU’s, much like the state of California has done.
Unfortunately, under either scenario, the effect on interest rates and the housing market is likely to be the same: a downgrade in U.S. debt, with knock-on effects on the cost of mortgages (read, a bump — if not a spike — in interest rates).
Chicken Little . . . Again?
So, mortgage lenders I know are anticipating as much as a full point increase in interest rates over the next month.
What’s less clear: whether the transition will be smooth (weekly, incremental bumps of say, .25%) or a more abrupt re-pricing.
I’ve certainly heard this from lenders before — like, quarterly for the last 3-4 years.
However, this time the chorus is both louder and more unanimous.
There’s also a consensus about timetable (imminent, i.e., days to weeks vs. “sometime soon”) and likely magnitude (the aforementioned full one point increase).
What to Do
So, if you’re in the throes of house-hunting right now, what do you do?
You can’t lock in a mortgage rate until you’ve identified a property.
However, look for Sellers and lenders to try to absorb any short-term “interest rate shock” with rate buy-downs and other concessions.
It’s also the case that developers selling new construction have more latitude to (continue to) offer Buyers attractive financing.