housing on the rise

An article published today on cnbc.com (1) titled, “Mortgage rate spike finally hits housing posits that the mortgage rate jump from May to June has just started to affect the housing market. It’s predicted that home buying will slow because of the bump in rates, but does a jump from say 3.50 percent to 4.50 percent really matter? There really are two answers to that question and it relates to basic human psychology.

 First, as we pointed out in an earlier article, rates did make an historic leap from May to June, with rates increasing at a pace not seen in 26 years. But even though we’re not at the rock-bottom rates we saw, we can certainly see them from here. Still, the media made the rise a trending topic and all consumers seemed to hear was, “rates increase at pace not seen in 26 years!” A typical “sky is falling” headline.

What consumers do is interesting. For those that are sitting on the fence, wondering whether or not to buy, they get off that fence and make that offer before rates reach to unheard of levels to say, 5.00 percent.

Others will shrug their shoulders and say to themselves, “Well, I guess we missed the boat this time” and tell their real estate agent, “Thanks, but no thanks.” Rate increases will affect people differently. There is one segment that it will affect directly, those that are just barely qualifying for their mortgage. A one percent increase in rate, even though the rates are still ridiculously low, can knock people out of the home buying game altogether. The cost of funds is just too expensive. Never mind the fact that they can put more down or simply buy a less expensive property.

In light of all of this, if consumers react so to a relatively mild jump in rates, what will happen when the Fed pulls the plug on their nearly five year stimulus plan? What will happen when rates move to stratospheric levels such as 5.00 or even (shudder) 6.00 percent? Heck, there are those of us who remember when mortgage rates were in the high teens back in the early 1980’s. And we’re still here to tell you about it, aren’t we?

We’ll survive any storm; it just depends on what each individual does with the information. Some will prosper, some will lose and some will continue to sit on a fence.

 

(1) http://www.cnbc.com/id/100952350

(2) http://www.freddiemac.com/pmms/pmms30.htm