Mortgage Rates and Real Estate Sales in 2011

Most people knowledgeable about real estate are suggesting that sales for the industry will be more or less the same in 2011 as they were in 2010. Of course 2010 sales were low and the housing market remains sluggish at best at the present time.

The winds of change have started blowing, however, and they are likely to affect the real estate market. Whether the results will be positive or negative is yet to be seen, but a case can be made either positively or negatively, depending on how certain unknowns work out.

The big change headed our way is likely to be higher interest rates for home mortgages and long term debt in general. In June the Federal Reserves program of purchasing $600 billion of government bonds is scheduled to end. This is an attempt by the Fed to hold interest rates down and spur the economy. Even with these efforts, however, interest rates on the ten year bond and mortgage rates have been rising.

But if interest rates have gone up even though the Federal Reserve is working to keep them down, what will happen when those efforts come to and end? The Fed might try to extend the program, but if they do there will be considerable opposition to such a move.

It is logical to think that an increase in interest rates is going to influence the real estate industry, but will that effect have sales going down or up? There are probably a lot of people who are interested in buying a home but who hear that average selling prices are dropping and are expected to go down another 5% or more in 2011. They are also aware that the number of foreclosures during the year is predicted to be even higher than there were the previous year.

If people who are waiting for the best deal on a home purchase were to see that interest rates were rising significantly and doing so rapidly, they might be motivated to come into the market sooner rather than later, because higher mortgage rates could have a significant impact on the monthly payments they will be making. Such a jolt in sales might even slow down the drop in home prices that is going on, and this would encourage even more buyers to jump in. So it is possible that the coming increase in interest rates will have a positive effect on real estate sales after mid 2011.

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