The good news for the housing market is that the economy is improving. Job creation is getting better and incomes are growing. The bad news for home buyers, and sellers who need buyers, is that the economy is improving. Of course, that news is not really bad, but it is changing the marketplace.
The Federal Reserve is easing up on its purchase of mortgage backed securities resulting in the expected rise in mortgage interest rates. Last month, when the Fed finally followed up on its intention to “taper off” its level of purchases, the markets reacted calmly and interest rates went up only modestly. That was a good thing. Now economists are wondering what the longer term impact on housing will be.
Even before the Fed acted, interest rates had been going up from their historic lows (3.34% in May of 2013). At the current rate of 4.50%, it is hard to say if the increase has had an effect on the market. Nationally and locally, sales have softened a bit but that may have as much to do with the lack of inventory as anything else. The math tells part of the story. Presently, the median price for a single family home in Acton is approximately $520,000. For every 1/8th percent increase in the rate of interest on a 30 year mortgage, the consumer loses about $5,500 in buying power. This example below holds the term, down payment, and monthly payment constant, showing how significantly purchasing power and interest rates are inversely related.
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