Buying a new home
If you've been putting off buying a house -- playing a game of chicken with long-term interest rates to see just how low they can go -- now might be the time to make your move.

Freddie Mac is reporting that the 30-year fixed mortgage rate averaged 3.59% for the week ending Aug. 9, up from the previous week's average of 3.55%. Two weeks ago, the rate was 3.49%, the lowest rate ever for long-term mortgages. The 15-year fixed rate was up as well, from 2.83% to 2.84%.

These are small moves to be sure, especially in the 15-year rate. But with coinciding news that housing demand is outstripping supply and that home prices are starting to edge up, it's possible that long-term mortgage rates have finally bottomed out and that this homebuyer's dream era of historically low rates is starting to move behind us.

Rising Rates + Rising Home Prices = Time to Buy?

The data comes from Freddie Mac's Primary Mortgage Market Survey, or PMMS. The PMMS is a weekly look at the mortgage market's most popular rates:

  • 30-year fixed
  • 15-year fixed
  • 5/1-year hybrid adjustable
  • 1-year adjustable

Freddie gathers the data by surveying lenders, and it has been conducting the benchmark survey since 1971. And as this mortgage data has come to light, so has corroborating Freddie house price data.

The Freddie Mac House Price Index is showing that from May to June of this year, prices rose 1.39%. Looking at the numbers year over year (June 2011 versus June 2012), home prices are up by 1.02%.

Again, this isn't a massive rise, but it is a rise -- something the housing market hasn't seen for ages.

It's All in Your Head -- Which Makes It Real

What economic forces are at work here? According to Freddie's Chief Economist Frank Nothaft: "... Rates inched up again this week following stronger-than-expected employment reports ... In addition, the number of announced corporate layoffs fell 45% in July compared to last July."

In other words, while the country is still not adding jobs the way it needs to be, the numbers are better than expected.

So people may be feeling a bit better about things overall. They feel more secure about their jobs, perhaps and, as such, feel more secure financially. When this happens, even though it's primarily psychological, they're more likely to spend, even on large purchases like houses.

Anything else to consider? We've also by now had several rounds of quantitative easing, or QE. QE is when the Federal Reserve steps into the bond market and buys U.S. Treasuries. In order to do this, it essentially prints money, which is what central banks have the power to do. QE, therefore, puts more money into circulation, and Economics 101 tells us that when you put more money into circulation, the cost of goods will go up -- goods like houses. This is the downside of QE: the risk of inflation. But in the case of the U.S. housing market, it's so overdue, having been depressed for so many years, that some inflation is likely a welcome sign.

So, is it time to run out and buy a house, before rates and home prices rise even further? Even if 30-year and 15-year fixed rates aren't about to start zooming up, they're at historic lows and are unlikely to go any lower. The situation is similar with house prices: They may not be about to rocket up (let's hope not -- a housing bubble is what caused the financial crash), but they are unlikely to get much lower.

As a prospective homeowner, this might be a perfect storm of low rates, cheap houses, and a recovering economy -- even if it's an ever-so-slightly recovering one. But as always before a major purchase, make sure it makes sense for your personal financial situation.

John Grgurich is regular contributor to The Motley Fool.

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Great, Really it is a best mortgage blog. Thanks for share this.

November 26 2013 at 6:17 AM Report abuse rate up rate down Reply

Is it a good idea to pay for my house in cash from my 401k and just live off my pension and social security?..I'm 59and 1/2 and retired and about to draw social security along with my pension...

September 09 2012 at 9:37 PM Report abuse rate up rate down Reply
mike shaffer


September 07 2012 at 6:47 AM Report abuse rate up rate down Reply

Do all the math first folks.

I built my new home back in 1998 for just under $400,000 I spent an additional $85,000 over the years, in ground pool, finishing the basement, replacing appliances, adding landscaping etc, etc, etc.

And here we are in 2012 and even though I have $485,000+ into the house. If I were to sell it today considering the Real Estate prices. I'd be lucky to get my initial investment of $400,000 back.

So unless you plan to spend the next 30 years in the house your considering buying until its paid off. Don't expect to make a bundle on it if for some reason you need to sell it any sooner.

Its gonna be long time before we see purchasing a home is truly once again thought to be a good investment, once one does all the math.

August 15 2012 at 1:45 PM Report abuse rate up rate down Reply
1 reply to donovansdanes's comment

Selling today would be the wrong decision but if you would have sold in 2006-2007 you probably could have gotten $600,000. We're just having a slide in the market, it will be back.

August 16 2012 at 1:07 PM Report abuse rate up rate down Reply

I like owning my own home. Yes, there are some down sides to it but overall, I am a happy home owner. I like having my own place and doing my own thing. Other than college, I have never rented much but when I did I never felt like it was my home. You can't paint the walls or change the floors and they count every little nail hole you make when you are renting. I would not trade my home ownership for anything and I have been lucky to be able to hold on thru this nasty recession.

August 13 2012 at 10:24 PM Report abuse +1 rate up rate down Reply

I live in a resort area and I have to say that things are picking up a bit in the real estate market. There are very few short sales or foreclosures available now as most have been sold. I keep up with the weekly sales here and prices are improving. As for the interest rate, how much lower can it go? If you can borrow at this rate whether to buy or refinance good for you. Not many people can!

August 13 2012 at 9:50 PM Report abuse rate up rate down Reply

A lot of people are hoping it doesn't get better, but it certainly is getting a little better. There is not another forclosure storm coming because banks are now working with homeowners to short sell.

August 13 2012 at 6:00 PM Report abuse rate up rate down Reply

The next wave of foreclosures is on the way. Now is definitely not the time to buy. You will these columns urging people to do so. They are meant to help obama with the numbers. Not gonna work...

August 13 2012 at 5:23 PM Report abuse +2 rate up rate down Reply

I think it is best to wait and buy when interest rates are at there ABSOLUTE HIGHEST and coming down. That way, you can only afford so much home /payment has to be less (you use that to YOUR advantage) and then refinance and YOU save all that money. Otherwise the sellers are asking and getting ALL the money because YOU can afford more home (artificially inflated) and they won't come down in price what so ever.
In other words, would you rather pay more for an artificially inflated house price because interests rates are low or Less for the house because interest rates are high and then refinance and YOU save the money?
Think about it.
Generally speaking, it's more accurate to say your dollar is: "worth less", than to say "your home went up in value." It takes more of those dollars that fell in value. Of course if you have a home you are almost always better off than those who don't. That is, if you used some common sense and bought a nice piece of land and solid structure that is fairly up to date in a halfway descent neighbor hood.

August 13 2012 at 5:02 PM Report abuse rate up rate down Reply
1 reply to Victor's comment

I am trying to follow your logic but I can't. Houses are only going to get so low because it cost so much to build them. The cost of interest is a big part of the cost of buying a home plus the lower the interest rate the faster the principal balance goes down even on a thirty year loan. I do agree about using common sense and buying something solid within your means.

August 13 2012 at 9:53 PM Report abuse rate up rate down Reply

The title of this article is what many Realtors would like you to believe. In many areas, they are getting people to bid up the price of homes, telling them that there are just not that many available. Unfortunately, there is still a glut of foreclosures that hit the market every week. Many wannabe investors are losing money each month as they wait for renters that now want large homes in pristine condition for low rent. There are just too many homes available. If you want to own a home and know that you will have a steady income for the next 30 years, by all means buy a home.

August 13 2012 at 12:00 PM Report abuse +1 rate up rate down Reply