Why higher mortgage rates still help the housing market

Source: CNN Money

After continuing signs of an improving U.S. economy mortgage rates have been on the rise. Last week, interest rates on 30-year fixed rate mortgages reached their highest level in over six months, to an average of 3.63%. They were at 3.52% the previous week and 3.92% a year ago.

According to CNN Money, this increased mortgage rates technically make buying a home more expensive, but it’s unlikely to stall the housing recovery.

In 2012, home sales rebounded more than most experts had predicted, and even if mortgage rates climb higher the housing recovery should still last for a few reasons.

1) Buyers who have been on the fence about purchasing a new home may finally get that extra push they need in order to pull the trigger and lock in today’s mortgage rates.

2) Slightly higher rates may indicate that years of tighter lending standards are coming to an end and riskier borrowers are being offered credit. This may motivate potential buyers who previously thought they couldn’t get a loan.

3) After seeing that mortgage rates have almost no influence over home prices, the sustainability of the housing recovery will depend more on factors such as jobs growth than the cost of taking out a home loan.

4) Borrowing is still relatively cheap, so more potential homeowners may dive into the market.

5) It could encourage more home sales.

“Although important, rising interest rates alone are not enough to slow down the housing recovery,” says Barney Hartman-Glaser, real estate finance professor at Duke University. “My sense is that underwriting standards are getting easier to satisfy, and so we would expect rates to rise as slightly more risky borrowers are brought into the fold.”

Please comment with YOUR thoughts on what rising mortgage rates mean for the continued housing recovery.

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Source: CNN Money