Mortgages Rates Hold Steady as Home Prices Rise
Jan 29th, 2015 (www.bankrate.com)
Right NOW is a great time to buy a home. Interest rates are low and home prices are beginning to rise.
Home prices are on the rise, but potential homebuyers will still find mortgage rates near the bottom if they are applying for a mortgage this week.
Rates have hovered near these lows since mid-December, when the 30-year fixed fell and then stayed below 4 percent.
Home prices haven’t followed the same trend. U.S. home prices rose 4.7 percent in November compared with the previous year, according to the S&P/Case-Shiller Home Price Index report released this week. This is far from the double-digit increases the market experienced in 2013, but the numbers point to a healthy market with stable price appreciation.
“The numbers are showing home prices growing just about everywhere,” says Patrick Newport, an economist for IHS Global Insight. “I think that what’s driving them isn’t mortgage rates. It’s the tight market inventory.”
For those who missed the boat on buying a home when prices hit rock bottom, remember that today’s low rates may help offset some of the higher prices that buyers face.
“If you can afford it and can handle it, this is still a great time to buy, especially with lower (mortgage insurance premiums). Owning a home is probably cheaper than it is to rent in most places,” says Michael Becker, branch manager for Sierra Pacific Mortgage in White Marsh, Maryland. He is referring to a recent change by the Federal Housing Administration that reduces the cost of annual mortgage insurance that borrowers with FHA loans have to pay.
Rates have stayed low for much longer than many in the mortgage industry had expected.
It’s unlikely that rates will shoot up anytime soon, Becker says. But rates might start rising by midyear if the Fed raises the federal funds rate.
“Most people expect the Fed to raise rates by midyear,” Newport says. “Mortgage rates are bottoming out right now.”
The Fed said it’s committed to keeping short-term rates low at least until midyear, according to the Federal Open Market Committee statement released Jan. 28. The increase will likely be gradual, but buyers who are sitting on the sidelines may be in for a surprise when rates rise.
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