Why a Rise in Interest Rates Will Not Hurt Our Real Estate Market

Westcoe Realtors, Riverside California…Wow…Ben Bernanke burps, and the real estate world panics.  It’s like the Medical Alert commercials… “Help, I’ve fallen and can’t get up”.  Well Toto, you are not in Kansas, you can get up, and everyone needs to calm down regarding the slight rise in loan interest rates that has occured the past couple of weeks.  The sky is not falling, the earth has not stopped spinning, and the housing future is still brighter than we could ever imagine just a few short years ago.

Let us explain.

Before we begin, yes…there is some point out there where interest rates could go that would seriously affect our housing market, but come on…a slight rise from the high 3′s to the low 4′s?  Really, we all have better things to stress about.

First, a rise in interest rates will not slow the real estate market…it will only slow rising house prices a little, which is a good thing.  It is important that the general public understands the difference between a rising real estate market and rising home prices, because they are not the same thing.  Rising prices are a result of our current out-of-whack low supply/ high demand curve we are now experiencing.  A rising market will come when all those former homeowners who were foreclosed upon or did a short sale are able to get back into the real estate market as buyers.  For now, they are tenants.  In a year or two, they will be buyers, and then we will have a rising market.

So…back to why this slight rise in rates will not negatively affect our real estate market.

Any buyer who was in the market to purchase a home with interest rates in the high 3′s is still in the market to purchase a home two weeks later with rates in the low 4′s.  They just might need to buy a slightly smaller home, or one without a pool, or a longer walk to the school, etc.  The bottom line here is that the demand for homes has not fallen, just the type of home the buyer can afford has changed.  Whatever was motivating our buyer to purchase a home a few weeks ago is still motivating them today.  Let us not lose sight of the huge pull homeownership has on all Americans.

Secondly, if any buyer who was in the market to buy a home feels that a 30 year fixed rate home loan at 4.25% is too high, and they want to wait for rates to fall back to around the 3.o%…well, enjoy your life as a renter, because if history is any indicator of future behavior, it will only be about 30 years or so before we get back to the low 3′s.

Please people…let’s get a little perspective here and keep the big picture in mind.  There are too many of us that remember double digit interest rates not that long ago, and the real estate market managed to survive just fine.  Of course, we’re not stupid…everyone loves low rates.  It’s simply  that deep down inside, we knew that eventually this day would come.  We all like to hang on to our fantasies, but the real world intrudes whether we want it or not.

So…don’t panic, the real estate market will do quite nicely as the interest rates begin to fluctuate, and trust us….at some point, you will beg for an interest rate in the low 4′s.

Take care, and as always, thanks for reading our blog.

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