After seemingly months of dropping interest rates, they are once again on the rise. The average 30-year loan rate rose to 3.62% in the last week, up from 3.59% the previous week. Although the rates are still incredibly affordable, they have been rising from the record low of 3.49%. The 15-year rate reached 2.88% this week as well, which is up from the record low of 2.80% hit just a few weeks previous.
So what do rising mortgage rates mean for buyers? Quite simply, it means that the most affordable time in history to purchase a home could soon slip away. These rates tend to follow the yield on 10-year treasury notes, which in turn are dictated in part by the strength of the economy. When investors stray from more aggressive and risky securities in a down economy, they tend to purchase more secure products such as treasury notes. So when demand picks up for these notes, the interest yield decreases. On the other hand, a decrease in treasury note buys decreases demand and the yield rises. Increasing rates is an indication that investors are moving into more aggressive securities, something usually seen in a strengthening economy, and a strong economy is certainly good news for the real estate market. With an improving economy usually comes a rise in home sales and subsequently a rise in home prices. So again, what the rise in mortgage rates suggests is the start of a strong rebound in the real estate market.
Should buyers who are “on the fence” about purchasing consider acting quickly? Absolutely. Unlike older forecasts stating that mortgage rates could fall to the 1% range, the current market seems to now suggest strengthening conditions. Builder confidence is at a high, as are their production and stock prices. Building permits are up, new home starts are increasing, and the foreclosure inventory has shrank to a manageable level. Of course the economy has stabilized and has grown nicely in parts of the country, drawing capable buyers back to the real estate market. As demand increases and strengthens the market, the inevitable rise in loan rates and home prices will quickly follow. Even slight changes to a 30-year interest rate could be the difference in thousands of dollars for the buyer over the life of the loan. The time to purchase a home is certainly now and with all signs pointing to a strong market rebound, this opportunity may slip away sooner than buyers realize.
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