Rising rates signal change

A headline caught our attention last week. It caused alarm which led to its reading. "Mortgage Rates Make Biggest Jump of the Year" is bound to get the attention of anyone with an interest in the real estate market, especially those now shopping for homes.

Rising mortgage rates have been a concern for some time now. With the Fed's mid-summer announcement that it would be ceasing its purchase of Treasury products next month, we all anticipated a rise in rates. As announced in the referenced article, interest rates did rise, even on the heels of the Fed announcement that it had no immediate plans to raise the rates it charges to banks. The article goes on to state, "30-year fixed-rate mortgages averaged 4.23 percent, with an average 0.5 point, rising from last week's 4.12 percent average. Last year at this time, 30-year rates averaged 4.50 percent."

So where is the reason to panic? Interest rates are now at 4.23 percent or .27 percent below a year ago. It hardly sounds like the end of the world as we know it. Many readers of this column remember double-digit interest rates when purchasing their first home, yet they did it anyway because it just made sense. An opportunity to build equity that can be used to improve your life situation is not one to ignore so for those committed to building wealth, real estate has long been the answer. Even in the days of the Carter administration when some loans exceeded 20 percent interest, folks still dreamed of and pursued home ownership.

Certainly, for those who wanted a home when interest rates were at their lowest (3.35 percent in November 2012) a rate nearly 1 percent higher may seem staggering. Perhaps it is for them that the headline is intended. Those who saw interest rates at their high (18.45 percent in October 1981) can hardly be expected to get too excited about a 4.23 percent rate.

Maybe it is time to reflect. Time to wake up from the effects of devices like QE3 that have suppressed rates in the effort to combat the most recent recession. Time to face the reality that these low rates are artificially stimulated and cannot prevail for an extended future. While rates remain closer to the historic low than the historic high, the government purports that things are getting better. The several announcements last week that FedEX, UPS and a handful of retailers are ramping up hiring plays well when addressing growing employment until one understands these are seasonal jobs. Not careers that will solve our underemployment crisis. The Fed has always maintained that it will keep rates low until employment recovers. Its intent is to raise rates as inflation increases, yet according to our government, consumer costs actually decreased last month.

If we take these reports as truth, the short-term outlook for mortgage rates is anything but dismal. Those considering a mortgage are wise to pay attention and to act prudently when committing to any long-term obligation like a mortgage. Last week's announcement may be a sign to act before rates escalate further but a trend takes more than a week to establish. Any change in mortgage rates gets the attention of buyers and sellers alike, since they are each affected in some way by the news. We think it will take something a bit more dramatic to shock either into action.

Trust an expert...call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.

Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.