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Sunday, January 19, 2014

Home prices and mortgage rates rising

Quantitative easing of rates differs from monetary stimulus
Average 30-yr mortgage rates rose more than 1% between May and September 2013

By David Leiter

Home prices have been steadily increasing lately, and so have mortgage rates. If you’re happily living in a home of your own already and don’t contemplate moving anytime soon, then that information may not be very consequential to you. If, however, you happen to be a potential buyer looking for a new home, this information could have a large impact on any real estate decisions you might make in the near future!

Let’s start with home prices. They have been increasing dramatically in recent months, due in part to a drop in foreclosures, and there was a 2.6 percent increase in the month of April alone. Overall, the S&P/Case-Shiller home price index recorded a 12.8 percent increase this year over the last 12 months, which is the biggest increase since early 2006. The home price increase has gradually started to slow, with only a 1.3 percent increase in July, but that’s not necessarily a bad thing, because it will reduce the chance of another home price asset bubble; if you’re a potential buyer, however, these are all changes that you should be aware of (CNN Money).

At the same time, it’s also worth noting that the number of available houses in many popular buying areas (e.g. Boston and Denver) has dropped dramatically this year, so if you’re considering buying a house in one of those areas you might have some trouble finding what you’re looking for (CNN Money).

Meanwhile, mortgage rates on home loans have also been steadily increasing, but it looks like that may change soon; as of late September 2013, mortgage rates are averaging about 4.5 percent, whereas they were at 3.35 percent in May of the same year. This increase in rates has been partly due to expectations that the Federal Reserve will reduce its bond-buying program. For potential home buyers looking at 30 year loans, it means an extra $132 per month payment on a $200,000 house, which is pretty significant (CNN Money).

So if you’re a potential home buyer, what’s the good news for you in all of this? Well, first of all, mortgage rates are expected to drop again slightly over the next few weeks. This is partly due to the fact that the Federal Reserve will not be immediately cutting back on its quantitative easing  program, contrary to some expectations.

Secondly, even if house prices and mortgage rates continue to rise, there is still a lot of affordable housing available out there if you look around, especially if you’re willing to consider manufactured housing. For example, some dealers offer high quality 3-bedroom (2-bathroom), factory-built manufactured homes for only $25,900. Furthermore, even though home prices and mortgage rates are rising in general, they are still relatively low when you consider mortgage rates in previous years (rates were 6 or 7 percent during the housing boom), so the current outlook for potential buyers is not exactly bleak.

Perhaps the best news in all of this, however, is the underlying implication that the housing market is slowly recovering, and due to the higher mortgage rates, banks will be able to lower their lending standards, which will in turn help potential buyers. So if you’re one of the many Americans waiting for the housing market to improve, hang in there! Things should get better before too long.


About the author: Written by David Leiter, who works on a marketing team as a freelance writer, writing about financial advice, money saving tips, real estate, the housing industry, and more.

 Image license: Mario Antonio Pena Zapateria, CC BY-SA 2.0