Rates hit 2.5 Year High

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Well folks, many of you have been waiting for the shoe to drop, and right now it may be getting ready, finally, to do so!  Check out this report that says interest rates have reached a 2.5 year high.

For years now, the pundits (and everyone else!) have been speculating that rising interest rates will pop the real estate bubble – that the rapid rise in values that we’ve seen these past several years have been due to low rates and exotic financing options.  Every time the rates rise a couple of weeks in a row, the doom-sayers start coming out of the woodwork to announce that the party’s over, and, like latter-day Chicken Littles, that the sky is falling.

But now we’ve hit a 2.5 year high!  Of course, even 2.5 years ago they were saying that rising interest rates would put the damper on rising home prices – but the thing is, rates never really rose all that high – but home prices continued right on rising, until last year when they started to plateau, and, in some markets, to decline.

So now we have housing prices that aren’t rising (and in some cases falling, a bit), and the interest rates are rising.  So, about that shoe – is it about to drop?

Probably not.  The consensus is that prices will be stay flat (not drop precipitously) in the event of a modest rate increase.  If rates climb much over 7%, the consensus seems to be that this will negatively affect home prices.  But does this mean you should wait to buy?

If you are going to be paying in cash, the answer is clearly:  maybe.  It depends on the property, of course.  If you are planning to use lender financing, the answer is:  no, you shouldn’t wait – unless you believe that prices will take a big hit, like 15% or more.  But if the rates rise another 0.5% – up to 7% – and the prices only drop by a small amount – three or five percent, say – then really, you will still be paying more, per month, for the same property than you’d be paying at today’s rate of 6.45% or so.  Break out the spreadsheet and run some numbers!  If you need an interest rate/loan comparison spreadsheet, let me know, I’m happy to pass one along.

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