Constantly rising rates of mortgage may have negative impact on buyers of new properties

As mortgage rates rose sharply in the last month, it implied huge difficulty for many homeowners trying a refinance benefit.

This development took place at a time when thousands of property owners were in the process of gaining property equity to become eligible.

However, as the rates are still low (compared to an anticipated hike) some renters are purchasing out of apprehension of missing the best time of buying a property.

Last week, the refinances dropped by about 12 percent while new applications of mortgage for buying a new home rose by 3 percent.  This is presently higher by 14 percent than last year, the Mortgage Bankers Association reports.

“The rates rose responding to a profitable economic climate fueled by the anticipations that the Federal Government might soon start tapering the constant purchase of assets,” explained Mike Fratantoni from MBA in a statement.

Ever since the housing crash commenced, the Fed has pumped billions in the mortgage arena, pushing the rates of mortgages to all time lows. However recent remarks from Ben Bernanke, the Fed chairman suggest that these monthly mortgage infusions might come to a culmination soon.

This anticipation escalated the rate upon the conventional 30 years fixed mortgage up to a dangerous 3.90 percent, the maximum amount in last year, reaching on the verge of the emotional barrier of 4 percent. This is happening as the home prices continue to rise by leaps and bounds.

“The frenzy in buying homes is amazing to note, as renters are getting nervous that the mortgage rates and home prices might rise rapidly,” according to Craig Stent, the CEO of Apex, a Home Loans company from Maryland. “They are definitely trying best to get the best at the start of the upward curve.”

Dan Green, loan officer at Waterstone Mortgage in Cincinnati, however confirmed that his refinancing clients were the hardest hits, especially people who needed cost curtailed FHA loans. The home buyer clientele seemed more indifferent to the situation.

“Among the buyers at Main Street, the change in the mortgage rates this month (or this week) only had little impact,” added Green. “The households shopping for best rates are largely indifferent with an acceptance that ‘low rates would not last forever.”

However, in a general purview, the rise in rates can not be timed any worse considering the momentum of recovery of the housing market. The home prices rose by more than 10 percent during March, as per the latest data from Case-Shiller/S&P. According to Green, a rise of 1 percent in the rates of mortgage reduces the maximum home price for average homeowners by 11 percent.

The rising rates are going to affect the first time homeowners the most, just when they were trickling into the real estate market. In April, they were only 29 percentage of the buyers (which is the lowest rate in two years), as the data from the Realtors’ National Association states. Usually, they make up about 40 percent.

In December last year, the fixed mortgage rates of 30 year tenure came down to a record low of up to 3.47 percent. Even though the rate is lower than usual, they have had some serious consequences.

“The market situation and the pricing are definitely going down. Right now I own an inventory of well priced properties sitting unsold in the market,” confirmed David Fogg, a Burbank, California real estate agent. “Values are likely to soften if the mortgage rates constantly rise.”