Will Rising Interest Rates Affect the Housing Recovery?

Interest rates are now close to 4%, still historically low, but nearly two-thirds of a percentage point higher than last month. This is coming with the anticipation that the Federal Reserve could start scaling back its generous bond-buying program. The mortgage market is closely watching the central bank’s moves, which could shoot rates even higher. Some analysts are saying that rates will never by that low again.

Interest rates have been rising since early May 2013

Interest rates have been rising since early May 2013

The biggest threat to the recovery is that rates rise too fast. When rates rise, it takes away buyer’s buying power. For example, a buyer  is pre-approved for a $500,000 loan at a generous 3.5%.  Once interest rates rise to 4%, that same buyer can now only be pre-approved for a $475,000 loan. Either way,  monthly payments to the buyer will be the same. To put it another way, if rates rise a full 1%, homes are 10% more expensive for buyers.

Home buyers in San Diego have found listings in their budget are often snapped up within days. There is no time to “go home and ponder.” If you like it, you need to act fast.

San Diego has seen an increase of around 20% in the past year for home prices.  With buyers now starting to have less buying power, it’s bound to have a cooling effect on the rapidly increasing home prices we’ve been seeing.

 

 

 

For more information on this topic:

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