Interest Rates tick up, Luxury Homes Continue Torrid Sales Pace

By John DeCosta, Keller Williams Realty Portland Premiere

The sudden increase in mortgage rates last month, caused some fence sitting buyers to connect the dots and secure homes. Home Sales bumped up in May 2013, but the elevated interest rates have deflated the results in June 2013. This market is very sensitive to the movement of interest rates. Over the last week, the rates have moved back downward, and applications seem to be increasing again. This situation makes it very difficult for the Federal Reserve Bank to lean off the stimulus programs. If a slight increase in mortgage interest rates can slow the market, what is going to happen when the interest rates adjust upward to more sensible levels?

This will be a very interesting time for the Fed.  Artificially low interest rates can spur homebuilding and real estate sales. This could greatly assist the economy recover from the doldrums of the past 5 years. But how can the recovery be accomplished, if we are simply going to create a low interest rate fueled bubble in housing. The stock market has returned to historic highs, fueled by low interest rates. If low interest rates fuel a real estate recovery, how will we sustain the growth when the rates are free to float to market levels.  Savers are still getting meager returns, which penalizes seniors and savers.

These dilemmas are fascinating.

We recommend that our clients lock in their mortgages for the long run as fixed. We see rates of less than 5% as historically very desirable. We hope that the economy gets back on its feet without too much more federal involvement. Luxury homes are less sensitive to the interest rate level, and our experience is that luxury homes are selling very well, and in fact the supply of luxury homes is seriously depleted.