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Is the run of low interest rates finally over?

If you define “low” as remaining under 4% then the answer to this question for you is “yes”.  Many Americans were shocked to find out as they returned home from their early summer vacations that interest rates had jumped up last month.  We have become so accustomed to ridiculously low rates that everyone just assumed they would come back down even though most experts had been predicting higher rates at some point this year.  The first few days of this month were uneventful and rates pretty much remained stable. They hovered around 4.4% on a 30yr fixed.  Most Americans took a nice extended weekend with July 4th falling on a Thursday and some offices remained closed on Friday the 5th.  However, on Friday, the stock market was open and the June jobs report was released. Stocks rose following a stronger-than-expected June employment report.  Investors fear the better-than-expected job gains will spur the Fed to pull back on its massive stimulus program on the early side of the range it has set out for tapering purchases of Treasury and mortgage-backed securities.  This fear sparked a rout in bonds and the yield on the 10yr Treasury note jumped from 2.5% to 2.72% which is a two-year high.  This jump in the 10yr Treasury sent mortgage rates up as well and we saw rates go from about 4.5% to 4.75% in just a few hours on Friday.  This means that rates have jumped a full percent in just over a month.

Before we hit the panic button, let’s talk about the positive news that comes with increased rates.  First, one of the main factors for rates rising is that the unemployment rate is going down which is good news for our economy.  Jobs have and always will be the main focus in this economic recovery.  Second, the housing market is not only recovering but we have seen homes appreciating at alarming rates.  As a nation, we have seen homes appreciate in the last year at about 12% and parts of South Florida have seen an 18-20% increase.  However, employment incomes have not mirrored the home appreciation rates and have only risen at about 2%. So, if we keep up this pace, we may be on the path to another bubble burst in the real estate market.  We also have limited inventory as there are more buyers in our market than sellers.  Rising interest rates may actually correct this problem and cool the pace of the real estate market by eliminating potential buyers and investors from entering the market.  Lastly, even though rates have risen lately, real estate is still very affordable.  The 1% increase in rates will affect a buyer’s monthly payment by $147 per month ($1764 annually) on a $250,000 mortgage.  This may seem like a lot but it’s still cheaper to buy at this rate than rent.  We would need to see rates go above 6% to have the argument of whether it is cheaper to buy than rent and we are definitely not anywhere close to that yet.  In summary, I think if you were lucky enough to refinance prior to May of this year then consider yourself very fortunate and pat yourself on the back because you definitely secured a rate when they most likely bottomed out.  For those who are serious about purchasing and have been frustrated with the lack of inventory or the competitive offers, I would advise you to keep your chin up and don’t give up because things may change in your favor soon.

To learn more about our company and mortgage products, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email prioritydan@bellsouth.net. Please visit www.prioritylendingcorp.com

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