Earlier this year in March, interest rates surged which in turn swiped away any sort of interest rate incentive to refinance. With interest rates still high, some market analysts are now calling people to wait until 2020 to refinance.
According to a note that was sent by Capital Economics to its clients, it said, “we expect that a sharp slowdown in economic growth next year will prompt the Fed to stop hiking rates in June 2019, and ultimately trigger at least 75bp of cuts in the first half of 2020.” Many experts at Capital Economics expect a sharp downturn but not one significant enough to cause a recession.
As such, it may be best to hold on to your hopes of refinancing for a little while longer. But that doesn’t mean you can’t do other things. Many homeowners are not being idle, and have decided to start investing in their property.
With construction down and a low housing inventory, new data according to an article by The Mortgage Reports has found “Americans are taking the country’s housing woes into their own hands. With construction down and inventory still low, new data shows homeowners are investing more in remodeling and building accessory dwelling units to make up for it.”
In fact, one of the main drivers of this problem is wage growth versus home prices. According to BuildFax CEO, Holly Tachovsky, “Home prices are outpacing wage growth substantially…[t]hese affordability concerns are compounded by mounting mortgage rates and rising construction costs. As a result, homeowners, unable to re-enter the housing market, are reinvesting in their existing properties. The increase in remodel spend suggests the scope of these projects has risen, despite seeing a dip in remodel volume. Homeowners may feel unprepared to enter the housing market, but they are making larger investments in the health of their existing property.”
I have seen this first hand in my area in Southern California. It has become commonplace to see construction going on in neighborhoods. One family that I am particularly close to has decided to upgrade their home so they can accommodate their aging parents. This is in line with another trend according to the above-mentioned article, “Homeowners are also spending cash on building accessory dwelling units — sometimes called granny flats — which they then rent out on Airbnb, to tenants or use for housing friends and family members.”
Until things cool down in the housing market, it would appear that this trend will continue in the coming year. If the market analysts are right, and we are on the brink of a downturn, then refinancing may see an uptick in 2020. For now, investing in maintenance on your home or upgrading it could be a short-term solution that can potentially mean higher earnings or savings later down line depending on what your intentions are with these upgrades. For now, it would seem 2018, and perhaps even 2019, may not be the best time for refinancing, but it can’t hurt to do your own research, confer with a professional, and keep your eye on the Fed’s actions in the coming months.