With the housing market chugging along and prices up considerably, there’s not much that could derail the good news. A complete collapse of the economy would be the only catastrophe that could alter the run real estate is presently in. There are some concerns that might slow the market, such as a glut of inventory hitting the market at the same time, frustrated buyers taking a break from the continued loss of home to higher bids or maybe a spike in mortgage rates might deter the housing gains.
Rates jumped to 4.07% last week for a 30 year fixed rate loan. That’s up from 3.59% from early May. Economist Christopher Thornberg of Beacon Economics expects interest rates to settle between 4% and 5% next year. Higher rates have made obsolete the refinancings that were so prevalent when rates were at historical lows. For home buyers, the rise is nothing more than a blip. That’s because rates are still low and home prices, while higher, are still far from prior peaks.
Home buyers are making a conscious effort to get a mortgage now before rates head higher. This will not slow down the number of buyers on the market, but it could weigh on home price appreciation. That’s because higher interest rates make homes less affordable. Lower demand on homes would certainly be an issue of concern as we move into the Summer months, especially in markets where home prices are higher, such as in parts of California.
Even with the higher rates, owning a home is still far cheaper than renting, given home prices and rental costs. As of March, the cost of owning would have been 30% cheaper than renting with rates at 4.5% and 33% cheaper with rates at 5.5%. Though home prices went up significantly over a short period of time, the up tick in rates will alter how much home a buyer can purchase. For instance, two months ago a buyer could qualify for a $450,000 mortgage. The rate increase today might mean that same buyer can qualify for a $425,000 mortgage.
This could thwart the appreciation that was gained over the last six months, but will have little impact on consumers that are intent on buying a home. The only difference, these buyers will be buying homes priced more affordably than they would have done with the lower mortgage rate. Please visit my website www.JohnnyBrooksHomes.com for helpful tips on buying or selling a home or to view local area homes for sale in Davis, California and the surrounding communties.