Mortgage Rates rise could burst the Real Estate bubble!

Last week the average 30 year fix mortgage rate jumped to the highest levels in the past 2 years to an average of 4.46%!!  This huge jump is due to Federal Reserve chairman Ben Bernanke‘s announcement last week that the central bank is planning to halt its $85 billion bond-purchasing program.  The program was designed to keep the long term interest rates low to motivate the Banks to lend to small businesses which has not materialized.  Recent rise of mortgage rates was because they track the yield on the 10-year Treasury note which typically track the long term interest rates.  When the Fed actually begins to taper these purchases, mortgage rates are likely to move higher than then current rates.  So the question remains will the rise in interest rate kill the housing rebound!?   

The answer according to some economist is “NO” in the short run.   They anticipate that the rise in interest rates might cap the rise of home prices that we have been experiencing for the last year.   These economist anticipate some buyer who were on the fence about buying in the next 3 months, might decide to move quicker in fear of rising interest.  

But the long run the jury is out.   After all who could forget how Allan Greenspans’ goal to increase home ownership worked out!? Rise of interest rates coupled with the 100% purchase loans from aggressive lenders and their Wall Street friends who sold them as Mortgage Back Securities caused the Economy to crash.   But who are we kidding?!  Most of us were in our teen years when that happened!  Well it actually it was 2006.

How soon we forget.  We remained concern that the current rise of the interest rates coupled with the shortage of inventory will burst the current bubble that will create additional pressure on the limited inventory.  And we all know how that movie ended.

Let us know how you think the rise of interest rate will impact your housing plans?

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