How Rising Home Mortgage Rates Could Affect the Housing Market
It's no secret that the housing market has been in something of a slump over the last few years. Many individuals saw the value of their homes plummet to the point where they were actually underwater when it came to their mortgage. Other individuals had purchased homes using loans that were predatory in nature and soon found themselves with an ever growing monthly payment that they simply could not afford. Fortunately, the housing market has recovered quite a bit and individuals have got back to the business of achieving the American dream by purchasing a home.
That is not say, however, that things are back to the way they were a decade ago. In fact, people have actually been purchasing fewer homes recently due to the higher mortgage rates being charged by lenders. In September alone, the sales of homes fell by as much as 2%. While that is by no means good news, it is important keep in mind that even a 2% drop is still 11% higher than it was just one year ago.
It should come as no surprise to people who are in the business of helping individuals achieve their goal of homeownership that rising home mortgage rates can have a dramatic effect on the number of houses that are sold. Because purchasing a home is often a lifetime commitment, many individuals are more than willing to wait a few months until mortgage rates are more favorable rather than purchasing a home at a higher rate than what was available just a short time earlier.
According to Freddie Mac, a mortgage finance company, a fixed rate 30-year mortgage reached an average rate of 4.28% recently. Although that is still relatively low, a rising rate is likely to put many buyers on hold as they wait to see whether or not rates will drop again, allowing them to get the most favorable terms possible when it comes to their next home loan.
Currently, the national inventory of homes would take approximately 5 months to sell. Most industry experts agree that six months worth of inventory is healthy for the market.
The issues that caused the housing crisis a few years ago are still fresh in the minds of realtors, home buyers, and even lenders, making everyone a little bit more cautious when it comes to actually signing on the dotted line and taking possession of their new home. On the plus side, this also means that many homebuyers are more informed and better educated than they were just a few years ago.