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Buying a Home Will Be More Expensive as Mortgage Rates Move Higher

Buying a Home Will Be More Expensive as Mortgage Rates Move Higher

Buying a Home Will Be More Expensive as Mortgage Rates Move HigherCurrent mortgage rates are at the highest point in seven months, which makes buying a home more expensive. 30 year mortgage rates today are averaging 3.63 percent, up from the record low of 3.27 percent in November 2012.

At this point, mortgage rates increased slightly from record lows, so the impact on housing demand isn't an issue. In fact, according to Barney Hartman-Glaser, real estate finance professor at Duke University, higher rates might actually be helping the housing market.  Mr. Hartman-Glaser said in an interview with Fortune, "Although important, rising interest rates alone are not enough to slow down the housing recovery," says Hartman-Glaser, adding that "my sense is that underwriting standards are getting easier to satisfy, and so we would expect rates to rise as slightly more risky borrowers are brought into the fold."

As potential home buyers watch both mortgage rates and home prices go higher, they are finally jumping back into the market. A shortage of homes for sale is also causing the average listing time for a home selling to decrease. All of these positive factors coupled with an economy that is finally gaining momentum will drive home prices higher over the next several years.

Today's mortgage rates are higher than record lows set just a few months ago but rates are still very low, historically speaking. Conventional 30 year mortgage rates are expected to stay below 4.00 percent in 2013 and below 5.00 percent until the end of 2014. Even if 30 year conforming rates move above 5.00 percent, the demand for homes won't diminish.

Over the past several years there has been a refinance boom as homeowners have taken advantage of record low refinance rates. Some homeowners (myself included) have refinanced more than once as rates continued to fall. This refinance boom has already subsided for now but should pick up again even as rates move higher.

Millions of homeowners who bought at the top or near the top of the housing bubble have been unable to refinance. These homeowners were either under water on their loan (owing more than the home was worth) or didn't have enough equity built up in the home to refinance. As home prices move higher, these homeowners will eventually have the required 80 percent loan-to-value (LTV) that most lenders require to refinance.

Author: Robert Till
March 21st, 2013