Unfortunately, it’s true. Interest rates for home purchases are starting to show in increase. It is projected that within 4-6 months, the rates will be upwards 6% or even higher. They’ve already gone up for the 4th consecutive week! Ouch! Yes, we’re still remaining in near historic lows but that edge is projected to dwindle.
Rates on 30-year fixed loans rose to 5.14% from the recent lows of below 5%. They’re obviously, still affordable loans given that in the 1980’s, interest rates were 16-18%. That was the loan I had on my house – and I was grateful for it as we didn’t know how much higher they’d go!
Regardless, the higher the interest rate, the harder it will impact a buyer wanting to buy a house. It cuts severely into what they can pay monthly on their mortgage. This will affect the tone of any economic recovery.
Yes, in recent months, demand for homes has increased and recession caused lower home prices have eased. Government tax incentives for 1st time homebuyers did help to fuel the housing demand and the Federal Reserve has helped to keep interest rates low by buying up mortgage securities. (They pump money into our housing market making it easier for lenders to provide credit.) However, there’s now a retreat especially with tax incentives ending mid-year. And, in a move that’s potentially important for interest rates, the Fed has said it will stop buying mortgage bonds within 3 months or so.
Lower interest rates mean buyers can afford to spend. If the interest rates rise, it could put downward pressure on home prices, unless the interest-rate rise also accompanies a rise in income. No rise in income means the higher interest rates will cause buyers to hold off in buying “in hopes” that the interest rates will go down. Guess what that’s going to do to our real estate market….make it dive into what we just experienced…more homes on the market, sellers not able to sell their homes so more foreclosures, etc.
With this, another key factor of the housing market will be whether lenders standards get more lax or not. A good interest rate only helps if buyers can get a loan! Right now, loan programs are so tight, and documentation so lengthy, buyers are deterred from making that home purchase.
Obama said he wants to make sure regulators get the message to banks that credit should flow to qualified buyers. Unfortunately, foreclosures are expected to run high this year. Banks and regulators are also trying to make sure that they don’t dig deeper into a hole of bad loans.
Should you buy a home now? Absolutely! Is getting a loan like running a marathon through paperwork? Yes it is. Will it be worth it in the long run? Yes it will be. Call me if you’re looking to buy in Colorado. If not, and if you want to find a good, qualified Realtor who will go out of his/her way to help you, I can help you with this by interviewing, screening agents and finding that expert who will provide you with better than expected help in finding you the home you want.
Vicky Baker – Broker/Owner
Dancing Star Realty
877-488-2234 – toll free