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Cover story: Hint of rising rates may activate buyers
Despite record-low interest rates and an abundance of homes from which to choose, Washington-area homebuyers were rather shy in the latter half of 2010. Even when you include the busy spring market, 2010’s home-sales total was 7 percent lower than 2009’s.
So, if low rates and a good selection of homes didn’t motivate buyers in 2010, how will 2011 be any better?
“Most people are saying we won’t see real improvement until 2012,” says Debbie Rosenstein of Rosenstein Research Associates in McLean, Va.
“The fact that rates are rising isn’t going to be a good thing. The market’s not going backward, but it is only going forward slowly.”
Consumer-confidence figures remain shaky, unemployment remains high, and the economy seems to be stuck in neutral. None of these are going to help the real estate market rebound. But there are glimmers of hope.
“In September, October and November, things seemed kind of dead. Not only for me but other Realtors I talk to,” says David Rathgeber of Your Friend in Real Estate in Arlington, Va.
“But in December, it seems like things are popping more. Maybe people are trying to take advantage of low interest rates - which have edged up a bit recently. Or maybe folks just woke up and thought it was time to buy.”
December is always the slowest month of the year for Washington-area home sales, so no one should expect to see a big surge in sales for this month.
However, Mr. Rathgeber mentions one factor that could spur a modest boost in sales activity: rising interest rates.
“If it looks like rates are going to rise, some buyers will get off the fence,” says Holly Worthington, manager of Long & Foster’s Chevy Chase and Woodley Park offices.
“And that effect often continues as long as people are afraid rates will rise further. That’s because people are motivated more by the fear of a lost opportunity than the possibility of gain.”
Mortgage interest rates have been extremely low for a long time. Yet consumers seem to take for granted that rates below 6 percent are normal - because they forget history so easily.
In 1970, rates were 7 percent. In 1980, they were 12 percent. By 1990, they had fallen to 10 percent. In 2000, rates only made it down to 8 percent.
So you might have expected buyers to go crazy this year when rates fell below 5 percent.
Not so. Sales in 2010 were lower than in 2000, even though interest rates this year were much lower than they were 10 years ago.
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