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Ring The Alarm: Mortgage Rates at 2-Year High

Mortgage rates rose to a 2-year high this week as investors prepare for the Federal Reserve to slow down its purchasing of bonds. This, of course, is bad news for a housing market that has been heating up in the past few months. And with bidding wars and increased prices, we’ll see if increased mortgage rates will slow consumer demand. As reported by businessweek.com:

“As if bidding wars and rising prices weren’t enough to make homebuyers panic, the continued increase in mortgage rates is adding to the mania. Interest rates for home loans hit a two-year high, with the average 30-year mortgage at 4.51 percent, according to new data from Freddie Mac. That’s a third higher than it was just two months ago, meaning that on a $200,000 loan, the monthly payment jumps from $881 to $1,015.”

Not good news for the individual consumer. The increase in mortgage rates, coupled with the rise in home prices is double jeopardy for most people, drastically changing consumer expectations. As told by money.msn.com, that’s exactly what has happened to a Phoenix family in the market:

“Instead, they’ve begun shopping for a three-bedroom two-bath home, and in Buckeye, 15 miles west of Goodyear, longer commute from Phoenix and their landscaping jobs.’With rates going up from 3.75% to 4.5%, the same buyer who would quality for $140,000 now will qualify for a mortgage in the $125,000 to $130,000 range,” says their real-estate agent, Veronica Barragan, at Sueno Realty Group in Avondale, a western Phoenix suburb.

“In fact, it is no longer certain that the Borrayo family will be able to buy a home at all. Like many home shoppers around the country, they’ve been hit with a double whammy: Not only have rates risen but home prices are going crazy.'”

Now, you’d think that one of two things would have to give. Maybe we’re in a mini housing bubble that will burst a little again and then resume a more moderate pace of growth. But analysts are making the case that consumers may have realized that the markets have bottomed and that’s why they’re panicking to get into new houses. But markets are all based on perceived value, so maybe the prices have bottomed, or maybe it’s a bubble. And while I would lean towards the latter, time will ultimately tell the story. Tell us what you would/are doing in the face of these market conditions.

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