Prices may fall, but will rates eat in to buyer’s deals?

Thanks JPhilipson for this flicker photo.
I have many times said on this blog that this is the best residential real estate buying environment I have seen in my career. I have also said, that rising rates would be devastating to buyers in this market. I just read a convincing article on the Behind the Mortgage blog that alludes to the negative effect rising rates can have for buyers.

First, this market is currently suffering from a lack of liquidity and the restrictive guidelines that mortgage banks are imposing on buyers. Buyers must now have higher credit scores, more down and the property they buy is under much more restrictive scrutiny from appraisers. This has led to many buyers being cut out of the housing markets, which in turn has dropped demand and thus lowered housing values.

Second, rates have until now remained relatively low. This means that qualified buyers are cleaning up in this market. I speak from experience in this market, while I am seeing buyers get some great deals on property, and also get great 30 fixed rates.

We all know that markets are constantly changing and drifting. The current market chatter alludes to rising rates as the economy rebounds and the Federal Reserve puts as much upward pressure as they can on rates to quell the potential inflation fears. As I wrote in my post, Buyers Could Get Caught Waiting For The Sky to Fall, the deals in the market may begin to vanish as the cost of capital increases. A risk for buyer’s now becomes that real estate prices have already been squeezed so rising rates will not necessarily drop property values in conjunction with increased cost of capital and the rising difficulties of getting approved.