What Rising Mortgage Rates Mean

We all knew rates could not stay low forever. But what does that mean for the housing industry? Rising rates mean changes in both the short term and the long term, and while it may seem painful for U.S. consumers, rising rates are a good thing and will contribute to the proper growth and long term stability of the real estate market. 

Here’s what to expect in the short term: for the rest of 2013 and 2014 mortgage rates will be in a “trading range,” in the mid 4 – to – mid 5% range. This will result in less refinancing and more purchasing. Some homebuyers who could not find homes may feel like they missed out.  

The good news is they did not! Overall, we expect the real estate market to be very robust. For this reason, it is still important that future homebuyers use a lender that can offer preapproval and guaranteed fast funding. 

Here’s what to expect in the long term: our industry is projecting a 60% increase in purchase loans by 2014 compared to 2012. The rise in interest rates will stabilize proper growth in real estate, which will allow appraisers to appraise homes more accurately. 

Secondly, mortgage rate increases will drive the creation of new loan programs. As with any business, when there is great volume, there is no incentive to be creative and drive growth. With overall loan volume decreasing, banks and capital markets will be more willing to create new loan programs which will increase business for the real estate industry. 

In the long run, rising rates will help stimulate proper growth and home pricing. They will create more opportunity for first-time home buyers and for homeowners who want to move up to their next home. They will also reduce competition from cash buyers. 

Remember too, that even with rates increasing, the Housing Affordability Index remains positive for homebuyers. People considering buying a home should compare their rent payment to their potential new mortgage payment. 

As a  licensed Realtor, I can provide a rent vs. buying scenario to help determine if your goal of homeownership is realistic. We all love low rates, but considering the average mortgage rate since 1971 is 8.64%, we’re still far below average. A slight rise is healthy for the industry. It means stable growth, more accurate pricing, more creative programs, and less competition for buyers. It means better business. 

If you have any questions about mortgage rates or real estate in general, contact Michele Ashbarry at (858) 774-2059 or send an email to: m.ashbarry1@cox.net .  I will be delighted to assist you.