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Opportune Time To Buy As Rates Begin To Climb

Saturday, July 6, 2013

Opportune Time To Buy As Rates Begin To Climb

The housing market is in an interesting position, where prices are coming down, while mortgage interest rates are beginning to rise.  People are repeatedly warned that the days of record low affordable home financing are behind us.  Where once if you planned to purchase a home in the medium to long term it was considered unaffordable, the cost is now getting more expensive in the short term as well.

In the real world, nine out of ten would-be homebuyers require a mortgage to purchase a home, the few exceptions being those with at least $400,000 to spare.  The cost of a mortgage over the lifetime of the loan increases with interest, which becomes more expensive depending on the corresponding mortgage rate.
In the period during and immediately after the Great Recession, mortgage rates were reduced to near record lows to help soften the economic impact on the housing market.  The lower rates allowed more people to remain active participants in the housing market.  Housing is an important part of the economy, and without a strong housing sector, the economic recovery is abysmal at best.

However, the days of record low rates are moving quickly behind us.  Housing indeed remained strong, and helped drive the economy back to a robust state.  As a result, the need for lower financing rates has passed, and would-be buyers can expect the cost for a home loan to increase in the weeks and months ahead.
Economists and realtors are advising buyers who may be on the fence to find an affordable mortgage rate, and lock in now.  In the last few weeks, rates increased by 50 basis points, and as the economy projects stronger numbers in GDP, employment, and trade opportunities rates will continue to rise with the economic indicators.  An advertised mortgage rate today could be significantly higher as early as next week.

At the same time, people are advised to only apply for a loan if they can afford the payments.  Easy access to credit resulted in a number of bad loans prior to the recession, which eventually caused the economic turmoil.  If current rates are unaffordable or barely manageable today, consider holding off on becoming a homeowner until you can afford unexpected changes in the cost of your mortgage.