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Interest rates above 7% may cool real estate market

May 6, 2004

Comfort zone in 6.5%-7.5% range, according to survey

Inman News

Seven percent mortgage rates seems to be a tipping point for a good or bad housing market, according to a new survey.

Most respondents to an Inman News informal survey on mortgage interest rates said rates could safely rise to 7 percent without endangering the health of the real estate market.

The survey asked: "At what level can mortgage interest rates reach without significantly impacting the real estate market?" Survey respondents picked from several different rate amounts, ranging from 6.5 percent to "above 10 percent."

The results, tallied Wednesday morning, showed that about 34.1 percent of survey respondents answered "7 percent" as a safe level for rates, while 26.8 percent said "7.5 percent" and 24.4 percent of respondents answered "6.5 percent."

About 10 percent of respondents said interest rates of 8 percent would not significantly impact the real estate market.

This past week, the average contract interest rate for 30-year fixed-rate mortgages increased to 6.1 percent from 6.01 percent one week earlier. Points including the origination fee increased to 1.38 from 1.28 the previous week for 80 percent loan-to-value ratio loans.

Some of those surveyed are bullish that the mortgage industry and the government will not let things get out of hand.

One survey respondent said, "The economy will need homes sales for the next 2-5 years. This economy will take a long time to recover. Raising rates too quickly will have a negative effect and a depression."

Another said, "The mortgage market has always introduced creative products to keep payments low and sales continual. Higher rates will slow the price increases, and that will offset the increase."

"With the raising of rates, homes will be out of reach for the average buyer. Raising the interest rates will stop the real estate market in its tracks," said John Kary, a Realtor for RE/MAX 440 in Skippack, Pa . "Higher interest rates could even push the economy into a recession, and interest rates above 7 percent could be particularly hazardous to the real estate market," he added

Copyright: Inman News Features

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