Could Mortgage Rates go lower

Do you think mortgage rates could go down?

Overseas crises - and the slowdown in domestic house sales - are dampening US mortgage rates. Trigger higher mortgage rates lower house prices? When you are a home buyer and have a watchful eye as mortgage rates increase, you may be asking yourself whether higher interest rates will cause home values to decline. When mortgage rates go up, the price of houses for selling will have to go down, because otherwise these houses will become less accessible, won't they? There is, however, no powerful correlation between home values and interest rates.

In general, mortgage rates tended to increase as the economies grew, the labour markets were sound and salaries rose. Against this backdrop, individuals can pay more and are more willing to take out a bigger mortgage. Meanwhile, real estate price is being driven by stock levels and building costs. Whereas increasing mortgage rates have no direct influence on house values, they can have an indirect one.

"Mortgage rates alone, like what we're seeing now, will not be enough to influence house prices," says Adam DeSanctis, member of the Realtors Association of Public Finance and member of the Realtors Group. DeSanctis says that most individuals, especially in a buoyant economic environment where salaries are rising, can pick up a few points over the years.

"All in all, if you have increasing mortgage rates over an extended time frame, you will see lower levels of interest rate growth, especially in the lower part of the mortgage markets. If this happens, you could see a modest increase in inflation, which we think will be the case this year," says DeSanctis. An essential element that causes house values to increase is the lack of entry-level buildings.

Construction material increases and clients can more readily cover these expenses by constructing quality houses. The fierce rivalry for starter properties leads to higher property values and the price structure of many potential purchasers. House rents rose 5.9 per cent year-on-year in February, in every area, according to the National Association of Realtors:

Plus 9.6 per cent. Plus 5.4 per cent. Plus 4.5 per cent. Plus 3.6 per cent. Even though salaries are rising, they are still behind the costs of accommodation. By March, however, annual income was only 2.7 per cent above the previous year's level - not enough to bridge the difference between income and rising house rates.

"You can still see that house values are outpacing salary increases and are at least twice or three times as fast as salary in many markets," says DeSanctis.

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