Signs of fatigue in the housing recovery

August 28th, 2013

Thirty-year mortgage rates rose to 4.58 percent as of August 22, their highest level since July 7, 2011. Even before this latest surge, there were signs that higher interest rates were beginning to take their toll on the housing rally.

The Mortgage Bankers Association reported that, as of August 21, mortgage purchase applications were up just 5 percent year-over-year. Contrast this with the beginning of May (before mortgage rates started rising), when purchase application activity was up 13 percent year-over-year.

Signs of fatigue in the housing recovery can also be seen in the latest monthly figures on the length of time it takes to sell a house and the number of listings on the market.

Coping with rising rates

If you've been looking to buy a house, you should monitor rising mortgage rates -- but don't be discouraged by them. Instead, you need to take steps to cope with them rationally:

  1. Use a mortgage payment calculator to update your price target. Depending on what mortgage rate you used to first set your price target, that target may now be out of date. Rather than continuing to look at houses that may prove to be beyond your budget, use a mortgage calculator to recalibrate your price target.
  2. Use a loan calculator to set a range of acceptable mortgage rates. It's always tough to hit a moving target, but that's the challenge when mortgage rates are changing from week to week. Run scenarios of higher or lower mortgage rates to determine a range in which you could maintain the same price target. If mortgage rates rise above that range, it will be a signal to drop your price target. If they drop below that range, it may be an opportunity to raise your target. In the meantime, operating within a range will reduce the chance that you'll have to keep revising your target from week to week.
  3. Act decisively. When you find a house that meets your needs and your budget, don't dither. Houses don't stay on the market forever, and now it's clear that mortgage rate levels may be fleeting as well.

The good news is that even as mortgage rates may be moving against you, it appears that the climb in home prices may be slowing down to give you time to buy.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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