For over a year, interest rates were kept low to endorse home buying; however, rates have been rising steadily over the past few months. According to a Realty Times article, the interest rate for a 30- year fixed rate mortgage is currently 4.86%, up 5 basis point from last week (1 basis point equates to 1/100th of a percent). The hybrid 5-year Treasury-indexed adjustable-rate mortgage (ARM) also jumped from 3.62% to 3.7% over the past week.
So, what does all- of- this mean for the average American homebuyer? For starters, this jump in interest rates makes financing a home less affordable since borrowers will be forced to pay more interest. To make matter worse, most banks still require huge down payments and a very good credit score to even qualify. As a matter a fact, my father and I just purchased an investment property in Las Vegas where we were forced to pay a 25% down payment! Keep in mind: my dad has an almost perfect credit score and great relationships with several banks. However, there is some good news (just for buyers, but not for the market as a whole): home prices are still falling. This means that buying a home can still be affordable.
Overall, I think it’s clear that the market for real estate is in extremely bad shape. Home prices are still falling. As if that’s not bad enough, interest rates are increasing, reducing the demand for homes. This decrease in demand will prevent property values from increasing anytime soon.
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