Will Higher Mortgage Rates Kill Real Estate?

There’s no doubt that mortgage rates are on the rise. Freddie Mac says interest levels for 30-year fixed rate loans have risen roughly .6 percent since the start of May and there’s little doubt that this week’s rate announcement will be well above 4.0 percent.

So, will higher mortgage rates kill the real estate market?

While there will be a lot of grumbles and screams the answer is no. Here’s why:

Interest rates hit record lows in late 2012. By record lows I mean mortgage rates not seen in decades.

Why were rates so low? Because the Federal Reserve has been screwing with the marketplace by purchasing long-term securities at the rate of $85 billion per month. If the Fed reduces — “tapers” in the language of the day — its purchases than rates will rise. Rumors and gossip of smaller Fed purchases led to the interest-rate spurt seen during the past week or so as well as the stock market sell-off.

Why anyone should panic over rates in the 4 percent range is unclear. The interest levels of 2012 were plainly unsustainable and unrealistic. In historic terms most mortgage borrowers during the past 50 years would have rolled naked across hot coals to get such financing. Indeed, they would have rolled for mortgage rates of 5 percent and 6 percent.

Mortgage Rates

Not only were the 2012 rates impossible to continue they were simply bad for many people. While low rates have helped mortgage borrowers they substantially damaged savers and retirees by gutting returns on their capital. Little wonder, as The New York Times reports, that 41 percent of all workers say they never expect to retire.

For mortgage borrowers who did not get in on the record-low rates of 2012 now might be a very good time to finance and refinance. After all, who knows what rumors regarding the Fed will soon spread — or what the Fed will actually do.

For sellers there should be some comfort in the notion that massive pent-up demand remains. At the same time the real estate industry alleges that inventories of homes-for-sale remain tight.

Technorati Tags: , , , , , , , , ,

Posted in: News

Post a Comment