Rising Interest Rates Won’t Help Floundering Housing Market

photo credit: bookish in north park

With home prices falling, you might think that now would be the perfect time to buy. But hold that thought: the fact is, though housing prices are on the way down, <a href=”http://www.msnbc.msn.com/id/25374401/”loan interest rates are on the rise, eating away at your real savings.

Rates for your run-of-the-mill, 30-year, fixed-rate mortgage have risen from 5.98 percent to 6.45 percent in just the last month. 15-year, fixed-rate loans are in the same boat, with their interest rates also rising. This comes as no surprise to experts, who say that bond investors, the ones who determine long-term loan interest rates, have been concerned with inflation and its effects.

Expert economists all have differing opinions, though the general consensus is that rates will continue going up. Says Gus Faucher, director of macroeconomics for Moody’s Economy.com, interest rates will hit 6.8 percent by the end of 2008, 7 percent by 2009, and will settle around 7.5 percent by 2010.

However, though the situation may seem discouraging, it’s unlikely that rising interest rates will not affect the housing market as much as it seems. Indeed, at the beginning of 2008, when rates hovered at a comfortable 6 percent, the home-buying market was still depressed, with few buyers urged on by the promise of low rates. Says Guy Cecala, president of Inside Mortgage Finance, “We haven’t seen the end of price reductions,” and that housing prices are likely to continue falling until well into 2010.

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