When interest rates hit all-time lows, the value of my home started to bounce back. I noticed more young couples shopping for homes in my Florida neighborhood. Even though salaries tend to be lower in Florida, most young people could afford a home due to low interest rates and the short sale deals.
After a short reprieve, I've noticed the value of my home has started to go down once again. Zillow.com estimates my house is now worth $119,000 or exactly half as much as it was worth during the housing bubble in January 2007.
According to a recent article by CNBC, rising rates are rattling the mortgage market. As interest rates rise, people can't afford to spend as much on their home purchases. The article points out higher interest rates correlate to a drop in mortgage applications. Experts say a weekly report from the Mortgage Bankers Association showed refinances are down 8 percent and new home mortgage applications fell 4 percent.
Giving up on the dream
I used to think I'd eventually get back the money I invested in my home. However, now it's clear I might never see the value of my home return to what it was when I bought during the housing bubble. It's unrealistic to think my home will double in value in my lifetime, which is what would have to happen in order for me to feel housing has actually recovered.
Settling for less
My husband and I have been forced to settle down in our Florida home in order to minimize our financial losses. It made financial sense to refinance when interest rates were at 2.75 percent. After paying all the refinance fees, it wouldn't make financial sense to move. Refinancing to a lower interest rate and staying put in our home will benefit us, but not as much as a dramatic rise in home values. We are able to avoid the high cost of house hopping due to closing and moving costs.
Reading the signs
If just a slight increase in mortgage rates deters first-time homebuyers from jumping into the real estate market, I can't imagine what will happen if interest rates go back to double digits. Experts say the Millennial generation is already having a difficult time qualifying for mortgages because of massive student loan debt. Even if they pay off their debt, there are other problems ahead for the real estate market. Once baby boomers pass away or move into retirement villages, there will be a massive inventory of homes flooding the market.
Refinancing to one of the lowest mortgage rates on record means we can pay off our mortgage while we are still in our 40s. Although I don't appreciate the fact that my house is worth half as much as it once was, I am glad we can pay off my mortgage. Our home may never be worth $240,000 again in our lifetime. Even so, our home is a better investment than our stock investments. The reality is, we can't live in our stocks but we can live in our house.
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