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Rising Mortgage Rates To Boost Housing?

By Mike Wheatley | March 20, 2013

With the economy finally showing signs of recovery from years of stagnation, mortgage rates have been slowly picking up too. Last week, the 30-year fixed rate mortgage climbed to its highest level in almost six months, reaching 3.63% on average according to the latest figures from Freddie Mac.

Rising Mortgage Rates
© spectrumblue Fotoliacom

From an economic perspective, this can be taken as a promising sign that things in the US are slowly getting better, meaning more jobs and greater prosperity to look forward too. However, with mortgage rates likely to continue their upwards climb, buying a home is set to become more expensive as a result.

Readers could be forgiven for thinking that this might harm real estate's recovery, but according to some analysts the opposite could actually be true - as housing becomes more expensive, those who have been poised to make a move may finally be nudged into taking action.

The belief is that those who have been debating over whether or not to buy will finally go ahead and do so while the iron is hot. Borrowing is still cheap, but it's not getting any cheaper, and buyers will realize that unless they act soon they're likely to miss out on the best rates. By moving quickly, buyers can lock-in a mortgage rate now and take advantage of financing that probably won't be this affordable for years to come.

"Rising interest rates alone are not enough to slow down a recovery" explains Barney Hartman-Glaser, real estate finance professor at Duke University, in an interview with Fortune.

"Underwriting standards are getting easier to satisfy, and so we would expect rates to rise slightly as more risky borrowers are brought into the picture."

Rising mortgage rates won't just spur individuals into acting now either. Businesses too, will want to take advantage of today's low rates while it's still possible. According to Fortune, commercial and industrial loans topped $1.5 trillion over the last year, a 12.5% increase on the year before.

Andrea Heuson, a finance professor at the University of Miami, says that this growing commercial real estate activity bodes well for the country's economic prospects. If businesses are borrowing more, it's likely they're doing so on the back of job growth and increased consumer confidence, two factors that also lead to increased activity within the residential real estate market.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
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