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4 Reasons Not To Worry About Rising Mortgage Rates

Mortgage rates have been climbing steadily in the lead up to 2014. This makes a lot of home buyers skittish. Here are four reasons why it shouldn’t.

Rates are still well below what they were before the crisis

People have short memories. A decade ago, when the housing market was booming, a 30 year fixed-rate mortgage sported rates well over 5%. At the rate mortgages are rising, we won’t touch 5% until late this year.
It is slowly getting more expensive to borrow, but not at an alarming rate. The difference between now and later will be much more minuscule than you think.

More houses are being built

After the housing crisis we had a lot of empty houses, but as the economy recovered, home inventory actually became a bit of an issue. Home prices soared as inventory decreased. But new home construction is on the rise which should lift up supply and reduce pricing.
In other words, as mortgage rates are rising, home prices should fall to offset, leaving us much the same later in the year as we are right now.

Investors will not compete as much with home buyers

A lot of investors saw an opportunity in the housing crisis, snapping up properties while rates were low and driving up the floor for prospective home buyers. With rates rising, margins shrink, and investors will take their money elsewhere. Since they are apt to be less competitive for property, allowing home buyers to fill the gap left by them.

Quantitative easing is being tapered because the economy is better

The Federal Reserve plans to taper off quantitative easing, the policy of buying government bonds and securities to steady interest rates and increase the money supply. It will be a delicate process, for sure, but these economic training wheels coming off illustrate that the market is stable enough to survive without it.

Rates are still well below what they were before the crisis

People have short memories. A decade ago, when the housing market was booming, a 30 year fixed-rate mortgage sported rates well over 5%. At the rate mortgages are rising, we won’t touch 5% until late this year.
It is slowly getting more expensive to borrow, but not at an alarming rate. The difference between now and later will be much more minuscule than you think.

More houses are being built

After the housing crisis we had a lot of empty houses, but as the economy recovered, home inventory actually became a bit of an issue. Home prices soared as inventory decreased. But new home construction is on the rise which should lift up supply and reduce pricing.
In other words, as mortgage rates are rising, home prices should fall to offset, leaving us much the same later in the year as we are right now.

Investors will not compete as much with home buyers

A lot of investors saw an opportunity in the housing crisis, snapping up properties while rates were low and driving up the floor for prospective home buyers. With rates rising, margins shrink, and investors will take their money elsewhere. Since they are apt to be less competitive for property, allowing home buyers to fill the gap left by them.

Quantitative easing is being tapered because the economy is better

The Federal Reserve plans to taper off quantitative easing, the policy of buying government bonds and securities to steady interest rates and increase the money supply. It will be a delicate process, for sure, but these economic training wheels coming off illustrate that the market is stable enough to survive without it.

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.