How Much Is the Recent Spike in Rates Going to Hurt Homebuying?
Dear Ali:
This is your good angel talking. While you still have your health, come in off the ledge and explain, what's the effect of the recent spike in mortgage rates?
A:I would really like a do-over of the past two days, please. Interest rates roared up half a point, which cost me, as someone who is in process of buying a home, about $20,000. That's twenty thousand.
We haven't locked our rate in yet -- we have till the end of June -- but what CNN's Paul R. La Monica called "the great bond freak-out" has definitely got us on the edge.
For one thing, it was low interest rates that persuaded us that now was the right time to buy, even given the terrible climate. (Hubby is a first-time buyer, but we live in a major metropolitan area and so make too much money to catch the $8,000 tax credit. Before you decide that you don't feel sorry for us, realize that due to devastatingly high housing prices, we have lived together in a studio, probably the size of your living room, for five years.)
I'm a real estate agent and a writer, and I know that due to the recession, I will see a huge drop in income -- a Samson-level haircut -- for at least the next two years. But I thought that cheap money would help balance that. Now, just as my business is being rabbit-punched by the recession, the bond market traders are taking my cheap money away because there's a recovery!
Aw, guys, can't you pick one or the other?
For further reading, today's Wall Street Journal piece on interest rates, and my favorite explanation of the mess from my friend Alan Heavens in Philadelphia is here.
As my boss is fond of saying, no one is dead, and no one is on fire, but I hate losing $20,000! We had seen a slight recovery in housing sales, up 2.9 percent in the April numbers released yesterday by the National Association of Realtors. I get that the financial markets (umm, weren't those the geniuses who got us in trouble in the first place?) are worried that a recovery could bring about inflation, and there's no better way to kibosh that recovery than raising interest rates. But which would you rather have? A little inflation and a recovery? Or perfectly inflation-free wasteland?