Rising Interest Rates Could Slow Our Housing Recovery Efforts

Many experts are starting to ask themselves if it’s possible that the housing market recovery has already peaked, and this is all we get, or could there be more coming? We’ve just ended another month with lowering home prices and increasing mortgage costs and it’s easy to wonder just where we’re going to go from here. In fact, mortgage rates have risen to 4.5% where they were at just 3.3% in November, and many homeowners are feeling those extra costs. In fact, the rising mortgage rates are actually proving a hindrance to potential home buyers. That, coupled with rising home prices are causing many home buyers to take a step back and try to re-examine if they can afford their “dream house”, or if they should simply wait to see what happens with our housing recovery efforts.

So What’s the Problem?

You may be asking yourself, if home prices are increasing and mortgage rates are increasing, isn’t this an indicator that things are looking better in the real estate market, and that our housing recovery could be just around the corner? The answer to that isn’t exactly simple. Yes, we have seen some progress in our housing recovery efforts, there is no doubt of that. It’s the side effects of these rising numbers that are causing some of the problems with potential home buyers.

Where We are in The Here and Now

Many couples and families looking for a home are discovering a rude awakening. With rising home values and mortgage rates, your out of pocket costs are suddenly through the roof, and you may not be able to afford what could have afforded just a year or so ago. For some families, the mortgage rates are pushing the monthly payments up past what they are comfortable paying, and for many, that’s a deal breaker. So for those trying to buy a house right now, and just getting the deal worked out, could find that their mortgage payment has just gone up by a couple hundred bucks simply due to the rise in mortgage rates.

But is the Housing Recovery Dead?

Many experts are saying no, while others claim it’s too soon to tell. It’s true that home loan applications have begun to tamper off as the mortgage rates have been rising, but that could be simply a temporary problem that will right itself with time. Many are holding out in hopes that interest rates will come back down, while others are instead feeling a “sense of immediacy” to purchase homes before prices and mortgage rates rise even more, says Lindsey Piegza, chief economist at Sterne Agee. She believes that the housing market is still inching it’s way into improvement, and while the recovery may be taking longer than we all hoped for, it is still within our reach.

So what will happen in the future? Unfortunately, it’s too soon to tell if the Feds will lower the mortgage rates to help give the economy a much needed boost, or instead will wait to let us get comfortable with where rates are before increasing them again. But whatever happens, it’s bound to be a wild ride.

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2 Responses

  1. I think with the current government shut down over the new budget, the economic recovery is not going to happen anytime soon and the economy might actually decrease as a result. Like you said we will have to wait and see!

    1. Denis,
      I fear you are right. The government shutdown as well as the looming debt ceiling deadline is going to cause the US credit rating to take a hit again. There’s just too much gamesmanship in the capitol these days.

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