Where are interest rates headed? If even higher, do you think it might put more downward pressure on home prices?

Asked by Kye Louis, Woodland Hills, CA Mon Dec 6, 2010

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Jeffry Goldsmith’s answer
Jeffry Golds…, Agent, Baltimore, MD
Wed Dec 8, 2010
Rates are heading up. So the answer to your first question is easy. They could even be higher by the time I'm done making this post. Projecting too far into the future I have little interest in. Were I to speculate on numbers in the future, I'd select lottery numbers first. Forced to speculate further, I'd imagine the rates are as low now as they're going to be fore some time.

As for putting more downward pressure on home prices, that's an interesting question. The market is off, by most pundit's estimations, by as much as 30% from the high of mid 2006. So it's losing 7+% per year. How much more could it really lose? Many sellers have lost whatever equity they made during the boom years b/t 2002 and 2006. These sellers are already selling at a loss in many situations. Futher, a considerable number of them were first time buyers, who are already in their home a bit longer than they had expected to be.

Can you put downward pressure, then, on someone who can't afford to get out from underneath a mortgage they're upside down on? I don't know. I'm sure given the opportunity to lose their savings or not sell their home, many people will eventually choose to not sell their home.

There is no crystal ball with which to know for sure. I can tell you this...You'd rather be in a new home, assuming that's something finacially within your power to do, now, while the prices are great and the money borrows cheaply, than wait until the perceived best deal to ever come down the pike materializes. The savings won't be as much as you think they will be, and if you wait too long, you're going to hate yourself for not buying what you want over a small monthly payment difference. Settling for what you don't want is never a good reason to buy anything.
0 votes
Akop Balayan, Agent, OJai, CA
Mon Dec 6, 2010
Hi Kye,

It's very difficult to know for sure where interest rates are headed, because it is a function of many variables. However, we do know that interest rates have not been this low for decades. Take a look at this historical graph of mortgage rates since 1963:


As you can see, we are at the lowest levels since 1963.

Now, if rates do rise, historically speaking this will usually have a negative impact on real estate prices. Higher interest rates means the buyer's purchasing power diminishes, consequently the buyer must purchase lower priced properties. Since all buyers will suffer this effect nationwide, home prices will typically fall if all else is equal.

Hope that helps.

Happy hunting,
Web Reference:  http://www.vchousehunt.com
2 votes
Catherine Be…, Agent, Lawndale, CA
Mon Dec 6, 2010
Interest rates are at the lowest levels they have been for decades and will start to go up eventually. For anyone who is looking to purchase a home they plan to finance and keep for a while, this is a fabulous time to do so. On the other hand if you are a cash buyer, you may find better opportunities next year, if rates start to go up.
2 votes
Kobi Costa, Agent, Encino, CA
Mon Dec 6, 2010
Historically, rates are exteremly low right now. Rates have been slightly increasing and it is my belief that they will continue to rise. I do believe that this will cause some reduction in home prices. However I do not think it will be proportional. The reason for that is that while affordability will drop, potential sellers who are locked in a good rage will be hesitant to sell, reducing inventory and keep prices relatively high.
1 vote
Richard Schu…, Agent, Los Angeles, CA
Mon Dec 6, 2010
Interest rates are probably headed very slowly upwards. In the longer term, this will have a slight downward pressure on prices. I would imagine you won't see more than a 1/2 point jump in the next 12 months, which would have a negligible affect on prices. Over time, rates will go up more, but probably small increases in price will off set most of the rate increases.

If you want to meet to discuss further, let me know.

Richard Schulman
#1 Buyer's Representative
Keller Williams Realty
1 vote
Stephen Blohm, , San Jose, CA
Mon Dec 6, 2010
While interest rates have been creeping up lately, Federal Reserve Chairman Ben Bernanke is talking about purchasing Bonds. All else equal, this action will increase the money supply and put downward pressure on interest rates. That said, with interest rates already at all-time lows, don't cont on the rates being this low 6 months from now.
1 vote
Sara Mehrpou…, Agent, Los Angeles, CA
Mon Dec 6, 2010
Hi Kye. That's a tough question. I think there is only so much that interest rates may increase. It is DEFINITELY a lot harder to qualify for financing-- regardless of if you're looking to do FHA or conventional. I also think that there is only so much that prices will decrease because despite the economy, there are still a lot of buyers with money out there (cash).

Please let me know if I may be able to assist you. Good luck.

Sara Mehrpouyan
Rodeo Realty
1 vote
Jeannine Sha…, , Northridge, CA
Mon Dec 6, 2010
Hi Kye,

According to my lenders, the rates generally are up a little higher around this time of the year and then expect them to come back down at the beginning of the year.

Would be happy to speak with you directly and help you in your search!

Jeannine Sharaga (818) 298-7521
1 vote
Maria Cipoll…, Agent, Coral Springs, FL
Wed Jul 24, 2013
Home prices showed significant gains during the past 12 months, even with mortgage rates were up slightly over the past month, but remain highly affordable and should continue to aid in the ongoing housing recovery.

Best of Luck,

Maria Cipollone

0 votes
Rudi Hofmann, Mortgage Broker Or Lender, El Segundo, CA
Wed Dec 8, 2010
On 11/5 conforming loan rates on a 30 year fixed were 3.750%. Held for a while at 4.125%, then 4.250%. Today, they reached 4.750%. Every increase reduces borrowing power. Super conforming rates o a 30F hit 5.000% today. That's the first time I've seen 5% on conforming loans in almost a year.

Happy funding, Rudi
Web Reference:  http://www.umboc.com
0 votes
Jessica, , Virginia
Tue Dec 7, 2010
Over the past 3 weeks rates have continued to rise, but rates are projected to remain reasonably low throughout 2011. 2010 was pretty awful for home sales and it is said that low interest rates did not do much to push buyers to buy, so I don’t expect much better for 2011.

Home prices however depend very much on the local market. You can check out my blog to find a local market analysis for areas in the east coast.

0 votes
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