Round Rio Rancho

Mortgage interest rates have been at historic lows for years now…. Well, prepare for them to climb for a while. Most consumers are not aware of it, but as part of the economic recovery in the financial market, the Federal Reserve has been purchasing mortgage-backed securities for about a year.  The sub 5% rates we have enjoyed for the past year have been artificially held down by this $1.25 Trillion investment. If market forces had been at work, rates would have been much higher. That program by the Fed has now ended, and every indication points to a steady, protracted rise in mortgage rates.

30 year fixed rates have climbed almost a half point in just over 4 months, and are currently about 5.3%. Projections for the next couple years by the Mortgage Bankers Association predict rates at 5.8% by the end of 2010, 6.3% by the end of 2011, and 6.6% by late 2012.  Other financial authorities are proffering slightly different estimates, but pretty much all of them see significant increases coming.

The moderate recovery in the real estate market may stall or possibly even reverse somewhat as rates increase. By one estimate, for every 1 point increase in  mortgage rates, 1 Million potential Buyers are priced out of the market. This could mean higher inventories, longer time on market, and additional downward pressure on prices.  For those thinking that they should wait to buy until prices decline further (unless they are paying cash), the increase in interest rates will more than offset any savings in purchase price.  If you’re thinking about a home purchase in the Albuquerque / Rio Rancho Metro area and want to know the specific numbers, give us a call and we’ll do the math for you.