Do Higher Mortgage Rates Equal Higher Home Prices in NC?

Mortgage rates have gone up by an unprecedented amount every day for the last week. Everyday we are getting changes from the pricing desk with higher rates attached to them.  And they are pretty significant. The difference in payment between 3.25% APR  and 4.25% APR (which is where it appears we are headed) for a $200,000 loan is $113 a month.

That is a lifestyle changing difference – meaning folks are going to be looking at a slightly smaller home in NC as rates continue to rise.   There’s already fewer homes on the market in certain price ranges, and the question now is: Do Higher Mortgage Rates Equal Higher Home Prices in NC?

Higher Rates: 

With the Fed holding rates artificially low, when the Fed stops, rates will go up – any more questions?  The problem is that higher rates are often a product of the economy really picking up steam, with “really picking up steam” being somewhat subjective.

“Taper” is the big word these days. Last week there were two key phrases that spooked fixed income investors: Bernanke’s “in the next few meetings” and the minutes’ “a number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting”. June? What? What happened to all the brightest guys in the room saying rates would be here into 2014?  more on rising Interest Rate predictions

Pressure on Housing?  Higher Prices for Sellers:

The News and Observer in Raleigh has for the past six months been reporting that the real estate market in Raleigh (and most areas in NC) is already red hot, but we think that the rise in rates will no doubt have the effect of getting more folks into the market.

I received a Twitter message this morning from a friend in Raleigh that said:

@isellmoney so talking to co-worker yesterday, she sold her house in 8 days and raised price by $25k last-minute based on current market

I responded with something to the effect that “higher rates” might slow the market down… and then I started thinking, maybe not.  Yeah,  if we QUICKLY go from the low 3’s to like 5 – it would be such a jolt that I think some people might panic… but a gradual increase in the next few weeks could actually lead to even higher home prices.

“If people aren’t motivated by mortgage rates going up, they should be,” one local real estate agent I called said. “These are going to be the lowest rates that they have seen, that their children have seen…. They are never going to believe they were this low.”

Johanna Brown, an agent with Re/Max United in Cary,  said it would be pretty common for people sitting on the fence to get motivated by mortgage interest rates creeping up this summer.

“When we see an uptick in interest rates, people start to get that feeling that they might have missed the bottom of the market — which they have already.

But sometimes fear is an important factor in buying property,” she said. “The interest rates are still very, very good, and people who want to buy a home, if they can, should be out there trying to buy.”

The low rates and tight supply also have lured buyers back into the first time home buyer market.  Because of the purchase power these low rates have afforded first time homebuyers in NC,  the hike in rates is likely to serve as an additional motivating factor for drawing buyers into the market.

The other event looming on the horizon is the change in the USDA Maps.  As these maps change, over 25% of NC will not be eligible for USDA Home Loan Financing.

Prior to May mortgage rates drifted sideways for over a year, and were at fantastic levels. But that certainly hasn’t been the case since May 1st, and most of the Economists we follow say that it won’t be the case for the rest of the year either.

Interested in buying a home in NC, or refinancing your mortgage?  Want the Best Mortgage Rates?  Call Steve and Eleanor Thorne 919 649 5058.  We have our finger on the market, and we will help find you the very best program to save your family money!