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Health & Fitness

Rates are rising - what does it all mean?

In 1982 I purchased my first piece of real estate; our interest rate was 13.5% on a 3/1 ARM

In 1990, after 5 years in real estate, I got into the mortgage business.

In 1993, we were incredibly busy when the jumbo fixed rate dropped to 9.875%!

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In 1995, rates spiked! A local bank was offering a first time buyer 5/1 ARM at 8.5% with no closing costs. The rest of us were virtually out of business because we could not come close to competing with that rate!

For those of us who have been in the industry awhile, it is hard to understand why everyone is so upset that rates are now in the mid to upper 4% range. We know that these rates remain historically low so what is all the fuss about?

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No one knows how or if rising rates will impact our economy. Anecdotally we have seen the local real estate market cool a bit, of course the market generally cools in July when temperatures rise and beaches lure buyers away from their weekend house hunting.

But this July may be different; the buyers who do meet today’s restrictive lending guidelines are frustrated by low inventory, demanding sellers and bidding wars. Add to that a rise in rates and we are seeing buyers cool as summer warms up. A 1% increase in the interest rate increases the payment on a $400K loan amount by $230 a month, which is nothing to sneeze at.

For now we have to wait and see. Housing prices have been roaring back. Homeowners who were under water have equity today and values should hold and perhaps continue to increase. But don’t count on continued double digit and rapid appreciation; that would not be good for our housing market.

Today is still a great time to buy and to sell if all parties have proper expectations. Time for sellers to be a bit gentle by allowing buyers time to get comfortable with their purchase and excited for their new home.

As someone wiser than me explains:

“All interest rate increases aren’t created equal. A rise in 10-year treasury rates from 2%, where they are now, to 3% or 4% is a sign of improving business conditions and opportunities resulting from a strengthening economy. By contrast, a rise in rates from, say, 5% to 7% or 8% is a sign of an overheating economy that is creating systematic inflationary pressures and must be cooled.”   Dr. Elliot Eisenberg

                                                                                                                                                Let’s hope for continued improvement in our overall business conditions and the new opportunities that an improving economy creates for all and do our best to avoid over heating any part of our economy, especially our fragile real estate market.

For more information or a Fairway Guaranteed Pre-Approval, visit us at www.fairwayne.com or call 781-719-4664.

Content Courtesy of Amy Tierce, Regional Vice President, Fairway Independent Mortgage

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