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Continued: Surging interest rates could slow housing's recovery

  • Article by: ADAM BELZ , Star Tribune
  • Last update: July 6, 2013 - 9:57 PM

New buyers must have a job, income, savings and decent credit. They also must have careers and personal lives that make home-buying sensible, and they need to find a home they like in a neighborhood where they want to live. If all those things are in place, a higher interest rate likely won’t deter them.

‘It’s time to do it’

“Am I unhappy that it costs a little more?” Gumbinger said. “Probably a little unhappy, but everything else is aligned, so it’s time to do it.” Meanwhile, mortgage bankers, investors and economists are watching the Fed closely to see how it will unwind quantitative easing. Investors have become more accustomed to the idea of the end of the program, which is why mortgage rates have stopped rising in recent days, Gumbinger said.

But the end of quantitative easing is coming. The questions now are when, and how quickly, Gumbinger said.

In one sense, the mortgage market’s reaction to the Fed is evidence that the central bank is doing its job well, said Pete Ferderer, an economist at Macalester College.

The Fed is trying to keep the economy growing without letting inflation get out of control. It is promoting expansion when growth is slow, and taking its foot off the gas pedal, as Bernanke says, when things start to grow.

Still, the scale and impact of the Fed’s policies in recent years are unprecedented, and seen through the lens of history quantitative easing has been a remarkably ambitious project.

“I’m old enough and I’ve studied enough economic history to be awed by what the Fed has done,” Ferderer said. “It’s become the new normal, that the Fed is going to play such a powerful role in the financial markets.”

 

Adam Belz • 612-673-4405 Twitter: @adambelz

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  • FILE - In this Sunday, June 16, 2013 photo, a home is for sale in Glenview, Ill. A sharp rise in mortgage rates is threatening to slow the momentum that has driven the housing market sharply higher in the past year.

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