Should You Worry About Interest Rates Trending Upward?

Filed under: Market Comentary

Over the past few months, we’ve seen a general trend of mortgage rates heading in an upward direction.  Historically, this makes lenders, Realtors, and buyers a bit nervous.

However, is there real reason to worry?  Perhaps not.

What do increasing rates REALLY mean for a home buyer?  Let’s take a closer look.

Interest ratesAre people being priced out of the market?

It wasn’t long ago that “low” interest rates meant something in the 6-8% range – and we all thought it was unbelievable to get a rate below 7%.  Homes were selling at a record clip before we ever saw rates dip below 6%.  We’re still far below that so the realistic chances of large numbers of people being priced out of the market because of interest rates isn’t too likely.

Are people going to start renting instead of buying?

According to Trulia’s Chief Economist, Ralph McLaughlin, renting won’t become cheaper than buying in most markets until rates hit 9.1%.  Since we are no where close to that level, the value is likely to remain in home buying for quite some time.

What about the combo of higher rates and higher home prices?

This is where the home buyer actually could see some benefit from increasing rates.  Higher mortgage rates tend to keep prices from escalating too quickly.  It also could mean that homes stay on the market slightly longer and provide “bargain shoppers” with nice opportunities.

Will it get harder to obtain mortgage financing?

Small rate increases generally will not affect the well qualified buyer.  If they were planning on buying a home at the very edge of their qualification limits, their plans could be adjusted somewhat but typically interest rates are not the reason why someone doesn’t qualify.  More often, credit, cash reserves, and other factors play a larger role.

Should buyer hurry to buy a home now?

If a buyer finds the house that they love and they can qualify now, it makes perfect sense to pull the trigger.  However, buying the wrong house out of fear that rates will go up is a bigger financial mistake than waiting and paying a slightly higher rate a few months from now.  There is no need to panic and rush a purchase.

If you have any questions or would like to discuss any aspect of mortgage lending, please give me a call.  I’m available to assist.

Franklin Loan Center | NMLS 237653
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