Higher Rates May Slow Housing Here

By Gallagher, Jim | St Louis Post-Dispatch (MO), July 14, 2013 | Go to article overview

Higher Rates May Slow Housing Here


Gallagher, Jim, St Louis Post-Dispatch (MO)


The nasty rise in mortgage rates should take a little oomph out of our recovering housing market in St. Louis, but it won't send it back into a slump.

That seems to be the consensus among people who watch housing, both here and nationally. But those bets are off if rates keep rising.

Mortgage rates jumped late last month after Federal Reserve Chairman Ben Bernanke said the Fed will likely begin to "taper" its bond-buying program later this year. That program has been holding down mortgage and other long-term interest rates.

That warning led to a "taper tantrum" in the bond market. Rates on 30-year mortgages stood at 4.5 percent last week, a two-year high, up from 3.4 in early May, according to Freddie Mac.

On Wednesday, Bernanke tempered his stance, saying the economy needs the Fed's easy-money policy "for the foreseeable future." While those comments have soothed the market, no one is expecting rates to return to historic lows.

That's bad news or house-hunters. The recent rate surge adds $95 to the monthly payment on a $150,000 loan. At May's rates, a family with $60,000 in income could have afforded a $235,000 house. Today, they can afford $214,000, according to the housing affordability calculator at Equifax.com.

"It's a little bit of a deterrent," says Keith Gumbinger vice president at the mortgage information firm HSH.com. He expects the biggest effect on the low end of the market.

People who suffered most in the recession perhaps losing a job are likely to feel the rate hike the most, he says. They may have spent years rebuilding their credit while rates were low. Now that they're ready to buy, higher rates will put even cheaper homes out of reach.

"They're just at the cusp of qualifying," he said.

Ditto with young families who have been saving up for a down payment. They may have to save more to put a nice starter home in reach.

By contrast, more affluent buyers may decide to swallow the bigger payments, or buy a slightly smaller house.

Nationally, there's some evidence that first-time buyers are making up a smaller part of the market. That's worrisome because young buyers enable older homeowners to move up to more expensive houses, said Jim Dohr, president of Coldwell Banker Gundaker in St. Louis. "There's still plenty of business now, and everyone's bullish. But there are some areas of concern," he said.

Mortgages are still cheap, historically speaking. …

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