rates MAY turn the market around
Mortgage interest rates are expected to remain relatively low throughout 2007, but whether that is enough to spark a full-fledged rebound of the real estate market this year is a subject of vigorous debate.
Low interest rates typically spell good news for home
buyers and sellers since they lead to low mortgage
payments and allow consumers to buy more house
for the buck. But analysts are mixed about whether
that stability will trigger increased sales.
"Short-term rates are
going to stay fairly steady," says Mike
Fratantoni, senior economist with the Mortgage
Bankers Association. "We also see the 30-year
fixed mortgage rate creeping up -- about 6.2
percent today to about 6.5 percent by the end
of the year -- and then basically holding steady
The Mortgage Bankers Association
isn't alone in its assessment of a fairly stable
interest rate environment. In its January 2007
Economic Outlook, Freddie Mac predicted the
interest rates for 30-year fixed mortgages will
remain below 6.5 percent in 2007. The National
Association of Realtors in its February 2007
forecast predicted that the interest rates for
30-year-fixed mortgages will rise to 6.7 percent
by the second half of the year. But rates will
rise in such a gradual manner that, "potential
buyers will have some time to weigh purchase
decisions," NAR Chief Economist David Lereah
said when the report was released.
So what's fueling this interest
rate environment? Some say globalization. "Foreign
investors are now extremely active in buying
U.S. debt securities," Fratantoni says.
"That adds another set of buyers to the
market and helps keep rates down and fairly
Could the interest rate environment
change? "If, for some
reason, foreign investors decided to stop investing
in U.S. securities, we would see a spike in
interest rates," Fratantoni says. "There
is a risk there, but I don't think it's a likely
The rate effect
Nobody denies that low interest rates can spark the market.
"Just look at how a person's
monthly payment changes on their home when the
interest rate changes by 1 percentage point,"
says Chris Porter, senior consultant with Irvine,
Calif.-based John Burns Real Estate Consulting.
"It has a significant impact on their monthly
payment." A $300,000 home, for example,
would cost a buyer $1,610.46 per month with
a 5 percent interest rate and $1,798.65 with
a 6 percent interest rate -- nearly a $200-per-month