What the Recent Rise in Morgate Rates Means

Even though mortgage rates have recently soared to the highest level in two years, rising at the fastest pace since 1987, the housing market won’t be derailed. The average 30-year fixed-rate mortgage is now somewhere in the 4.5% range, and some economists predict it could soar to 5% over the next year. Prospective home buyers may be concerned that they won’t be able to afford a home with these rising rates in place; but should they be worried?

There’s no doubt that rising interest rates will change the real estate market, but it won’t destroy it. Some people may decide to buy homes in different areas, or to downsize what they want. People may be prompted to buy now before rates rise even higher, to get the best rate they can before they go back to the 6 and 7% ranges in the coming years.

In fact, in light of the recent interest rate increases, the number of ending homes has moved up as well. Pending home sales rose 6.7% in April 2013 (according to the National Association of REALTORS). And, everyone should remember, that while 4.5% is higher than 3.5%, it is still historically low and definitely fall within the range of “affordable” as far as the greater economy is concerned. Enough people are still qualifying for loans at these slightly higher rates that the local South Bay real estate market has a significant shortage of inventory because of very high demand.

Historically, when rates go up so do home values. To go along with the recent rise in mortgage rates, Home values were up 5.4 percent in May 2013, the second-highest annual rate of national appreciation registered in the past 12 months. This means an increase in equity and prosperity to go along with the cost of borrowing money. It is still a great time to get a loan and a great time to buy a home.

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