Surging interest rates could slow housing's recovery

  • Article by: Adam Belz , Star Tribune
  • Updated: July 6, 2013 - 9:57 PM

Mortgage rates have spiked since the Federal Reserve signaled a stimulus slowdown.

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swmnguyJul. 6, 1310:07 PM

The only number that really matters is how much do you have to make the check out for every month. People still bought and sold houses in 1982 when mortgage interest rates were 17%. But sellers weren't doubling their money on a home they bought 5 years prior. If you bought your house in 2006 and you have only made the standard payments, you'll be able to get out even but that's about it. If you took out a HELOC, you're going to lose money selling your house in a rising-rate environment. If, on the other hand, you looked at buying a house as an investment rather than a speculation, you should do just fine. And if you're buying, only look at how much you have to pay each month, including tax and insurance, and pay no attention to anyone telling you about appreciation.

sek2undrstndJul. 6, 1311:30 PM

“The recent shift in the rates has impacted some people, but it’s not like this represents a high-rate environment,” Raverty said. “This is still a great time to buy a home, and I think there are many smart consumers who know that to be the case.”.......It's all relative Mr. Raverty. As interest rates fell during the 2000s, prices increased. Now that rates are increasing, expect to see housing prices decline.

Wally_99Jul. 7, 13 1:12 AM

The fed's utterly absurd behavior in keeping numerous bubbles inflated (including the housing market - can we say "2008"?) is going to come home to roost in the worst way. Tick tick tick....

furguson11Jul. 7, 13 7:32 AM

Interest rates are really still a small problem. The big kahuna is rising health care costs. Those costs continue to drive the bus for business, consumers and government.

supervon2Jul. 7, 13 7:55 AM

The other part is utility costs. My electric bill has risen 80% just due to fees-I have NO AC and can't afford to run it if I did. Water bills are up 100% just due to fees. My water use is $6 and the final bill is $75 with the added fees. Ramsey county makes me pay for trains and radios and all types of crud on my property taxes. Plus, my garbage bill has a 28% tax on it! When will it end?

jimjimjimjimJul. 7, 13 8:05 AM

Most of us remember when 8% was a good rate. 5% was a gift. Today's rates are still a great deal, but the next generation will consider anything above 4% to be high. Look for liberals and democrats to propose a subsidy to offset the rates for the poor.

swmnguyJul. 7, 13 8:24 AM

Interest rates and prices balance each other to form the monthly payment, over time. If interest rates go higher, prices have to go lower until a sale is possible. If interest rates go lower, it's possible to sell for a higher price.

The only reason these historically low interest rates cause a problem by rising back to what they've always been, is that the market is distorted way out of whack by prices that are far too high. Prices have been far too high for so long that many people have configured their entire financial security around prices always being high and rising. That won't happen, and when the Fed allows interest rates to get back to what our economy needs them to be, those homeowners will be wiped out.

That's why the Fed is doing what it's doing; stalling the inevitable readjustment, because the finance industry has pulled forward so much future demand that if it were allowed to adjust on its own, the effect would make the Great Depression look like a walk in the park.

Historically, mortgage rates have been between 6%-9% most of the time, and house prices have been 2.5x median annual income, or in today's terms, $125,000 for the media house price. The market balances and is healthy at that rate. If you can't sell your house for $125,000 today and be OK, you have precarious finances and you'd better fix your situation before the Fed stops tampering with the markets.

jimmrockfordJul. 7, 13 9:24 AM

Higher interest rates=lower home value=upside down homeowner=more "walk-aways".

wiseoracleJul. 7, 13 9:34 AM

The Strib has developed a massively explosive proclivity for over sensationalizing stories lately!! Why is everything a surge, spike, spiral, plummet, etc.,.? I politely challenge you Strib - to keep a diary for one month... of how many times you use sensational language in your pieces. 5 percent is still a gift. People's expectations should be set accordingly. Sheesh!

lakesnloonsJul. 7, 13 9:57 AM

The headline is a bit deceiving; makes it sound like rates are rising out of control. At least it stated in the article that rates are still historically VERY low. With the nice recovery of the housing market and economy in general, there is no longer a need for the Govt to continue buying LT Bonds to keep rates artificially low. As a matter of fact, unusually low rates now, may do more harm than good in the long run! Supply has decreased and prices are increasing rapidly (too rapidly). Investors have bought the majority of distressed homes at a bargain, and homeowners have already refinanced at the extremely low rates! Rising rates, and new regs for Wall Street should prevent the corruption that lead to the housing crisis and took down the economy in the first place.


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