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 March 07, 2010

POSSIBLE RISE IN INTEREST RATES?
It is of utmost concern to all of us that, if and when interest rates rise, the interest rates on many home mortgages will increase causing distress to the homeowners who are affected. Should the rise be quick and of a large amount, that may trigger another round of defaults and foreclosures.
Indications are that any increase in interest rates is likely to be a small one and would probably not come about until around the 4th quarter of 2010. A decision by the Federal Reserve to increase interest rates would have to take into consideration the rate of economic growth as well as how a raise in rates would affect the market. With the present low rates and a hesitant Fed, the amount of any payment distress affecting the economy nationally would probably be rather small. Some areas will experience a rise in rates while their local real estate conditions continue to be weak. All of the sectors and areas of the economy will not be effected the same, due to the fact that the interest rates are set on a national basis, and real estate markets are local.

One recent report shows an increase in housing prices in quite a few metropolitan areas, resulting in the appreciation of existing homes. Hopefully, should interest rates increase, this increase in equity may reduce the anxiety of troubled homeowners, making it less likely that they will resort to strategic defaults.