At Any Rate: With Mortgage Rates On The Rise, Is The 4% Mortgage A Thing Of The Past?

Are 4% mortgages a relic from another era?As you have probably noticed, we spend most of our time here at New Construction Manhattan blog pondering the ups and downs of the Manhattan condo market. This means all kinds of chatter and gossip and so on about various NYC condominium listings and rising neighborhoods and new buildings and so on. But at some point, all of that fun stuff comes back to something decidedly less exciting -- the mortgage rate. The impact of those rates on all these condo listings isn't hard to figure out -- the lower the mortgage rate is, the more appealing an investment a Manhattan apartment comes to seem. All of which means that, when mortgage rates dipped to record lows just a few months ago, we did everything short of pop champagne at the prospect of how much easier 4.17% fixed-rate mortgages would make it to purchase a Manhattan apartment. Today, with rates climbing at a rapid clip and most forecasters predicting that they will continue to do so throughout 2011, it would stand to reason that we'd be somewhat less bullish on the NYC real estate market for the coming months.But while that's true at a certain level, the rising mortgage rates -- 5.02%, per -- aren't all bad news. We may not be popping champagne, but honestly it's still a little close to New Year's Eve for that. More to the point, thoguh, the rise in mortgage rates isn't necessarily bad news. "The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power," CNN's Les Christie writes. Which is obviously not good news, but also -- if perhaps less obviously -- not exactly a death sentence, given the rate to which home prices in general, and Manhattan condo prices to a somewhat lesser degree, have tumbled in recent years. With the economy belatedly showing signs of a comeback, it wouldn't be a surprise -- or a bad thing -- to see the housing market stabilize, and higher mortgage rates may be a part of that. In fact, Christie writes, the increase in fixed-rate mortgage rates may wind up strengthening the real estate market by encouraging home buyers to lock in a more favorable percentage, before the rate rises again. "Higher interest rates may even prove stimulating to the still quiet housing market in which sales volume and prices are scraping near their bottoms. 'The initial phase of an interest rate increase generally does not hurt markets,' said Lawrence Yun, chief economist for the National Association of Realtors. 'In fact, it can help.' The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more." What does this mean? Most immediately, it probably means that browsing our Manhattan condo listings should be done with an increasing sense of urgency. More broadly... it's hard to say. But it was bound to happen sooner or later, and if it augurs an improving economy (and a stronger Manhattan condominium market), then these rising rates might not be so bad after all.

NYC Daily Real Estate Blog