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Why Rising Interest Rates Aren't So Bad for Buyers
By Blanche Evans
If you are trying to buy a home, you are probably kicking yourself for not locking in an interest rate before the Federal Reserve Bank hiked short term interest rates by 50 basis points last month, but that's okay - you still have a chance to get a good loan at a reasonable rate.
When you fail to get in on a good deal, it's easy to grumble. Borrowers are saying, "Ouch," and the housing market is slowing slightly as a result. But you know what? The economy is merely balancing back toward more normal levels. It's hard to appreciate good news when it hits you in the pocketbook, but there are reasons why higher interest rates are a good thing for you as a buyer.
Due to the kill-joy tone of the FED chairman Allan Greenspan, economic pundits predict that interest rates will keep rising. The Labor Department's low jobless rate data didn't help home buyers either. A tight labor market could signal rising inflation and the FED is watching that inflation doesn't get a toehold. So, the pundits say, look for an another rate hike in June when the FED meets again.
While it's great that most people have a job across the country, you can still hear the buyers groan. Interest rates are at their highest levels since 1991, another rate hike would be disastrous for the housing market - or would it?
For the last couple of years, buyers in hot seller's markets have been at an extreme disadvantage. Home prices have shot up. Buyers represented by the best of Realtors found that if they didn't offer over market value and make a number of other concessions, that their offers were rejected. Many didn't even get to bargaining table at all - the homes sold before the Realtors even knew they were available.
Every time the interest rates go up, a tier of buyers has to climb down a rung. With fewer buyers able to afford homes in their target price range, an interesting adjustment takes place. Sellers quickly become more reasonable about their pricing. More homes become available for sale on the open market. That means that the buyer has more choice and can make offers at a less frenzied pace. In other words, the buyer has more power in the transaction.
So, you really didn't miss out on a bargain after all. It may seem that you are able to buy less home for the same amount of money as you were able to a few weeks ago, but you'll find that the market quickly adjusts as homes sit unsold. Less attractive homes will plummet in asking price. Middle price homes will be marketed with more features to attract more buyers. High-priced homes will stay on the market longer until they find the right buyer.
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© Copyright 2000 by Realty Times. All Rights Reserved.