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Mortgage Rates Hike, Would Home Prices Go Down?

Posted Tuesday, December 21, 2010

Mortgage Rates Hike, Would it Push Home Prices Down?

Mortgage rates rose over the last five weeks to 4.83 for a 30 year mortgage. Interest rates for 15 year loans are still considerably lower at 4.17, but also rising with the trend. Is this enough to discourage home buyers? It shouldn’t be. It should be an alert to prospective home buyers to get that loan before the rates increase even more. Interest rates are still lower than they are likely to be again in decades. Locking in that loan now, is the best defense on the rising rates. A few months ago rates were at an all time low, being artificially held down to encourage loans for home buyers and small business, as well as helping people in financial trouble avoid foreclosure by refinancing.

Understanding the Foreclosure Crisis

The foreclosure crises had four main causes, job losses, banks making risky hedge funds, unjust foreclosures, and bad loans The situation had nothing to do with interest rates. Interest rates have steadily dropped since the early eighties, when interest rates were around 15%. Rates have not been above 10% in two decades, and have been kept artificially low by government intervention. Housing price fluctuations are based on supply and demand. The market is flooded with foreclosures and people are reluctant to spend due to the uncertain economy.

I Really NEED to Sell My House!

So where does this leave the home owner who needs to sell? Other than pleading to the listing realtor, “Please sell my house fast, I’m going under financially,” or reducing the price, there is little a homeowner can do to move their house fast. If most homeowners are thinking, “I have to sell my house fast no matter what" and not “how can I sell my house for the most money,” housing prices will continue to drop. It is true that houses priced to sell will sell much faster than houses that are overpriced for the market, but at the same time if homeowners can afford to wait, they should hold firm and wait. Real Estate is still a great long term investment, if one has the capital, or the circumstances to hold out. Renting the home out is one option.

The We Buy Houses Market

For those people who cannot wait, the we buy houses market is a good option. While many people are selling, investors and investment companies, both large and small, are investing in real estate. It is considered one of the safest long term investments in tough economic times. For those people who have money to invest, and wish to gain net worth long term, buying homes is the logical option. People who own we buy houses businesses often renovate homes and re-sell them at a higher price later when the market is better. Real estate is still among the best investments to be made. Home prices and low mortgage rates are still very low, so now is the time to invest.