Rising rates can help, hurt market



  • Mortgage rates have been rising.
  • Rates are still low by historic standards.
  • Rising rates may spur some to sign on the dotted line.

Mortgage rates have risen to their highest level in about a year.

Rising rates may paradoxically persuade more buyers to sign on the dotted line, as consumers lock in rates still extraordinarily low by historic standards, while others may no longer qualify to buy as expensive of a home as they could have just a few weeks ago.Home for Sale

The average 30-year mortgage rate is 4.11 percent, according to BankRate.com, up from 3.75 percent last week.

Gary Bauer, an independent Realtor, said rising rates always knock some people out of the market — or at least require them to lower their expectations.

“For an example, someone who could have qualified for a $200,000 home, might now only be able to qualify for a $192,000 loan now,” Bauer said.

Also, as of June 1, all Federal Housing Administration loans with less than 10 percent down will require insurance to be paid for the life of the loan and mortgage insurance no longer will be canceled when the loan amount is 78 percent of the original amount.

“So two things came about: New rules on mortgage insurance on FHA loans, and rising mortgage rates,” Bauer said.

The good news is that at almost any other time in modern history, today’s rates would have been considered extraordinarily low, he said.

That could serve as a wake-up call for many buyers, he said.

“I think the realization that rates aren’t going to stay at historic low forever, could convince a lot of people they would be better off locking in now, than waiting and take the chance they will rise even more,” Bauer said.

“I think that is going to help the Denver-area housing market for the remainder of the year.”

Bauer, however, thinks that rates could fall near their historic lows again, before they begin their inevitable climb.

“I think the rising mortgage rates are going to go down again and this was just a blip,” he said.

Peter Niederman, CEO of Kentwood Real Estate, also said he thinks rates could dip again, before they start to rise in earnest.

“I would say in the last two weeks or so, interest rates have ticked up 50 or 75 basis points (100 basis points is one percent),” Niederman said.

“Usually, what rises really quickly or falls really quickly, in any kind of market, whether it is the stock market or the interest rate market, returns to the prior level,” Niederman said, unless there is some reason to cause a fundamental shift.

“Financial markets are reacting to something and I’m not sure what it is,” Niederman said. “I like to say that one month does not make a market. Well, two weeks is a very short timeframe to have such a big move.”

Panicking by what may be a short-term rise in interest rates is like crying the end of a bull markt when stocks dip, Niederman said.

Every market ebbs and flows,” Niederman said.

It’s too early to say the impact of the fluctuation in the rates and the new FHA rules, he said.

“I know last weekend, Kentwood has an extremely strong weekend for homes going under contract,” Niederman said.

“It might seem sort of contradictory, but maybe the rising rates had something to do with that,” Niederman said.

“When rates are falling, people sometimes like to wait, thinking they will fall more. Now, maybe the rising rates have got people thinking they really had hit bottom and they better lock them in and take advantage of what are still unbelievably low rates.”

Long-term, it is a fairly safe bet that rates will rise, he said.

“We all know rates are not going to remain at historic lows forever,” Niederman said.

“We have been very fortunate to be able to buy a home or refinance a mortgage at these very low levels. Ten years from now, we are going to look back and say those rates were just crazy. It’s a real gift for people able to take advantage of them.”

Have a story idea or real estate tip? Contact John Rebchook at  JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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