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By Adam Zoll | 07-17-2013 02:00 PM

Higher Mortgage Rates Not a Death Knell for Homebuyers

Despite a recent rise, lending rates remain near historic lows, says real estate expert Ilyce Glink, who also offers guidance on credit scores and encourages homesellers to be realistic in their expectations.

Adam Zoll: The housing market's recovery has been one of the more pleasant economic stories of 2013 so far. But will rising interest rates derail the housing recovery? Here to talk about this and other topics is Ilyce Glink. She is an author, a nationally syndicated real estate columnist, and the publisher of the personal-finance website,

Ilyce, thanks for joining me.

Ilyce Glink: It's a pleasure.

Zoll: So in the past few weeks we've seen mortgage rates really start to rise off these historic lows that we had been seeing. How are rising interest rates likely to affect the real estate market?

Glink: In the end, everybody is going to look back three, four years from now and say, "What was the big fuss about? 4.5%, or today it was 4.25%. They're going to think, "That was great." Just like two years ago, they also thought these were historic low interest rates. "Rush out and get them; they're not going to last." And surprise, surprise because nobody can predict anything in this market anymore, interest rates fell.

Now, they've come up and you would have thought that this was the death knell for real estate. You hear pundits talk and the media talks about it. But the reality is we just need some time to get used to the idea that mortgage interest rates are going to head up to a more normal level. What's normal? Well, since 1993 when mortgage interest rates fell below 6.5% for I think the first time since World War II, we’re going to run back up. We’re nowhere near 6.0%. We’re at 4.0%, 4.5%, 4.25%. If you go for 15-year loans, you still get 3.5%. But they are trending up, and we are going to see some movement up. What I love to remind everybody is the only reason we were at 3.5% is because the economy tanked, and it's still not completely fixed.

Zoll: Let’s talk about the effect that a rising-mortgage-rate environment has on people with different profiles. Let's talk first about first-time buyers. If you are first-time homebuyer, you're looking at these mortgage rates going up. I don't want to use the word "panic," but should you be concerned that you better jump into the market sooner rather than later?

Glink: The good thing is that you have a lot of control as a first-time homebuyer. What happens when mortgage interest rates are about 4.0% or 4.5% for a 30-year fixed-rate loan is you can typically buy--as long as you have a down payment--about 3 to 4 your gross income. If interest rates go up, you can buy a cheaper house. What people are forgetting is that home prices are also down still at historic lows. Yes, we've seen them go up 10%, but if you were in Phoenix or Las Vegas, home prices were down 50%, 60%, or 70%. Going up 10% or even 20% a year is more of a math game than anything else. I think in Chicago, where I live, you have seen prices down 30%-35%. Some neighborhoods have popped up a little bit, but you're not getting the appraisals in at the place where sky-high prices from 2005 and 2006 were going to appraise out. There are some controls built-in. You as a first time buyer, just go buy a less expensive house. It's OK. You don't have to live in a house with a pool the first time out.

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