Time for USA Investors To Back Down?

Posted on Monday, September 2 2013

Time for Investors to Back Down as Mortgage Rates Rise?

 

No, Says Property4Prosperity

USA Mortgage interest rates went up by over one full percentage point a few months ago, causing several people to worry over the impact on the housing recovery. Many were speculating that prices would fall again as buying with a higher interest rate made home ownership less attractive. However, according to Fannie Mae, these fears are unfounded based on historical data.

For example, interest rates were on the rise in the mid 1990’s, hovering around and above 9%. At that time, home prices stopped rising, then fell by a very small percentage. In the late 1990’s headed into the new millennium, rates jumped to 8.5%, at which point home prices suffered absolutely no impact at all. After the recent surge in home prices, it is likely that sellers will be against dropping their prices once more. In addition, other lending vehicles, like adjustable rate loans, provide more options to buyers looking to reduce their payments.

The rise in interest rates historically has tracked with other positive economic trends, providing another layer to a strong fiscal foundation upon which the housing recovery is built. When interest rates and home prices rise, unemployment rates drop and income goes up. These tendencies correspond to current trends: unemployment is down to 7.4% as of July, from 8.2% a year ago. Median household incomes are experiencing a much slower rise, but at least appear to have leveled out in the last several months.

As the economy continues its recovery, we here at Property4Prosperity encourage investors to stay in the market. While interest rates may continue to rise, they are still fairly low compared to the 6% historical average and pose little threat to home prices. All other things being equal, it is important to remember that many home buyers do not base the decision to buy solely on interest rates. Instead, they buy based on need, such as an expanding family that needs more room, or relocation due to work, or even the simple desire to purchase a house they love. Median price may therefore be affected, but overall, sales volume will continue to increase as the economy moves forward.

To Your Financial Freedom,

Chayot Ing-aram
BBS (Hons) & MFin
Co-Founder
Property4Prosperity.com

 

Appendices:
Mortgage rates went up: http://www.forbes.com/sites/moneybuilder/2013/08/14/with-mortgage-rates-in-a-holding-pattern-what-will-housing-prices-do/

Drop in unemployment:
http://www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspx

Median household incomes:
http://advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php

 

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Expert's Bio

Chayot Ing-aram

Chayot is the co-founder of Property4Prosperity, Inc. He lives and breathes property investing. He received his BBS with Honours and Master in Finance from Massey University. He has been featured in one of New Zealand’s bestselling property investing books, interviewed in New Zealand Property Investor Magazine, and worked in the Committee for the local Property Investors' Association. He is currently residing in L.A., California, where Property4Prosperity, Inc.’s headquarter is located.

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