For many home buyers out there who are getting close to closing on a home, the rise in mortgage rates over a short period of time has caused them to reconsider closing on their mortgages. They are putting off their purchase, hoping that mortgage rates will go back down below 4%. They may have to wait a long time.
The scenario I am picturing has the stock market continue on its new trend higher over the next couple of years as the new President and the Republican Congress make some significant changes to the tax, healthcare and social programs laws in this country. With the post election surge in the stock market, people are no longer buying as many bonds, and they have lost value. Lower bond prices mean higher interest rates. Additionally, if the Federal Reserve raises rates over the next year as expected, then mortgage rates will have further reason to increase.
The steady climb in mortgage rates that occurs in this scenario will cause people waiting on the sidelines to give up waiting for rates to return below 4% and jump into the housing market. Waiting for rates to go back down will be a bad idea. When rates are rising, it actually pays to buy a house sooner rather than later. This could start a bit of a real estate buying frenzy.
Once people realize the super low, under 4% mortgage rates are gone, they will begin to buy real estate with more urgency than they are currently. For the past several years, there has been no urgency to buy because rates have remained low. Those putting off their purchases will not put them off any longer. When more people are looking for houses, the housing market will heat up. Prices will start in increase. The next bubble will start to brew.
It will take a while for this scenario to play out, but I think there is a good chance mortgage rates continue to increase and this causes real estate market to increase rather than decrease as conventional wisdom would tell.
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