June 17, 2013
Rising Interest Rates May Be Good for Homebuyers
Interest rates have been steadily rising to new highs these past few weeks, which can mean different things depending on your financial goals. These new changes may discourage investors from borrowing, and hinder stock market performance, but they can also reflect positively if you are hoping to refinance or buy a new home, for example.
High rates “tend to damage the fervor of investors,” according to a recent report by Contra Costa Times, a San Francisco based news outlet. Higher rates dissuade investors because they generally borrow to buy, however with higher rates, the deal can become less profitable. With investors backing down, homebuyers are given a better chance to enter the market to buy a new home.
Further, the pullback of investors will help certain aspects of a bid process that they tend to make difficult. First, multiple offers, and second, buyers getting outbid.
“Buyers are discouraged with properties being sold way over asking. It’ll be good for the market to have more buyers feeling confident their bids will be accepted,” said Jenna Gray, a senior mortgage adviser at CMG Financial in San Ramon.
“We don’t want an investor-driven marketplace,” said realtor John V. Pinto, who has offices in Silicon Valley. “We want an owner-occupied marketplace. With interest rates rising, for people that are first-time homebuyers there will be more opportunities.”
Rising interest rates are also hitting the stock markets. Last week, the Dow Jones index experienced the first three day slide this year. The reason for this “tumble,” according to an ABC News report, is the doubts raised by the Federal Reserve. Particularly, investors are speculating that the Fed may ease up on its tough monetary policy, which involves an $85 billion monthly purchase of mortgage-backed securities and Treasury bonds. However, Chairman Ben Bernanke has not confirmed one way or the other what direction the Fed will go in.
Homebuyers are feeling the steady creep up of interest rates as well. While there is more room in the market for them to enter, they will be approaching mortgages with higher costs. Last Thursday, Freddie Mac announced that the rate for a traditional 30-year fixed mortgage averaged 3.91 percent, compared to 3.71 percent a year ago.
Hope is not lost for those looking to buy a new home or refinance a mortgage. Fixed mortgage rates below 4 percent are still a “relatively inexpensive way to finance a home,” at least in the Bay Area, according to mortgage brokers and realtors in the Contra Costa Times.
“In the grand scheme of things, rates are still at historical lows,” Ms. Gray said.
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