Will Rising Interest Rates Kill a Recovery in Housing?

Paul R. La Monica, CNNMoney.com's editor at large wrote an interesting article about the rise in long term treasury bond yields and their impact on interest rates. To read the full article visit http://money.cnn.com/2009/06/08/markets/thebuzz/index.htm.

Here is an excerpt from the article:

"The Fed lowered its key federal funds rate, an overnight bank lending rate, to near zero in December and has kept it there ever since. And the central bank announced in March it would start buying $300 billion in long-term Treasuries to keep long-term rates low, a phenomenon known as "quantitative easing."

The justification is that many believe the only way for the economy to truly get healthier again is for the housing market to get out of its funk. The direction of long-term yields tends to have an effect on mortgage rates.

Some fear that a nascent pickup in housing sales -- despite a continued slide in prices -- could come crashing to a halt if it suddenly become smore costly for people to finance a home purchase.

And according to Bankrate.com, a Web site that tracks lending rates across the country, the average 30 year fixed rate mortgage is now 5.45% up from 5.23% a week ago and a record low of 4.85% in April."

Nonetheless, it's important to note that even if rates go up a full point, they will still be within the average 5% to 6% we were used to during the runup between 2003 and 2006.

It's my belief that rates won't skyrocket much higher. Rates seem to have rebounded because people believe the economy is getting better. If they keep surging, it could slow down our recovery.

David J Edwards

Real Estate Agent & REALTOR
The David J Edwards Team
Keller Williams Realty Southeast Sound
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