The widely reported rise in interest rates has many concerned as to impact that will have on the housing market.
David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, said,
“Last week’s comments from the Fed and the resulting sharp increase in Treasury yields sparked fears that rising mortgage rates will damage the housing rebound. Homebuyers have survived rising mortgage rates in the past, often by shifting from fixed rate to adjustable rate loans. In the housing boom, bust and recovery, banks’ credit quality standards were more important than the level of mortgage rates. The most recent Fed Senior Loan Officer Opinion Survey shows that some banks are easing credit restrictions. Given this, the recovery should continue. ”
Now, to quote Mike Orr, author of the Cromford Report and Director of the Center for Real Estate Theory and Practice at ASU’s W. P Carey School of Business:
“Wise words, indeed. I would go further – those who think a rise in interest rates will halt the housing recovery are mistaken in the extreme. The current housing boom has only just begun and it will take a lot more supply being created to slow it down. Mortgage interest rates will have little effect on home sales. In fact the very low interest rates of the past few years had little importance in causing the recovery to start. It started because of the huge drop in housing supply while population and family units continued to grow. It started despite the extremely tight lending standards because so many people were willing to pay cash.
Higher interest rates are very likely to have a dampening effect on loan refinancing, but not on new purchase loans.”
The take-away for anyone thinking of buying a home today in Flagstaff is that time is probably not on your side in terms of capitalizing on what have been artificially low interest rates. To make it concrete, with a down payment of 20 percent, or, in other words, getting an 80 percent loan, for every one percent that interest rates go up, the effective cost of the home increases by about 10 percent! That’s because of what the difference in payments would amortize on a 30-year loan.
Experts today expect mortgage interest rates to be in the five to six percent range by the end of the year. Given the above, that could mean an effective increase in the cost of a home by 10 to 20 percent. The message should be clear.
If you’re thinking about a home purchase, now is the time. FBN
Sherri L. Monteith is the managing broker with Russ Lyon | Sotheby’s International Realty, 1750 S. Woodlands Village Blvd., Flagstaff, AZ 86001
928-779-5966