The following is a guest post by Tiffany Swisher, a Home Mortgage Consultant for Colorado Mortgage Alliance
Recently we have all been rattled by the sudden increase in mortgage rates, but we should not be. Since the Federal Reserve have been dropping the interest rate, which directly relates to our mortgage rates and PRIME RATE we have been told it is only a short fix and to expect interest rates to go back up.
Unfortunately or fortunately, however you choose to look at it, the Fed’s have kept interest rates extremely low for about 4 years straight and we have accepted these rates as the norm. Historically speaking the interest rates we were taking out over 4 years ago, 6%, before rates dropped, were historically low. The chart below illustrates this point.
There are benefits to rising interest rates as well. This is usually a sign of economic improvement. “Interest rates on mortgages, bonds, and other long-term debt are not set by the whims of fairies. They are determined by two factors: inflation expectations and economic growth, which combine to set the supply and demand for credit.
Mortgage rates only rise when people feel good about buying houses: inflation is pushing up home prices, and more people have jobs. The higher demand for housing pushes home prices up despite the higher mortgage rates. Will it work the same way the next time around?
The world is increasingly global. It’s possible that global demand for credit would be strong even though one country’s economy is soft. If we are an island of weak economics in a sea of economic strength, then we could see home prices go down with higher mortgage rates. However, it’s even more likely that global economic strength would lead to domestic economic strength, pushing home prices up.” -Bill Conerly, Forbes magazine