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What to do as mortgage rates keep sliding

Over the last few years, consumers who are looking to get into the housing market have consistently held steady in one regard. When mortgage rates go down, they get more active, but when rates climb, they tend to stay on the sidelines. Many experts believe this is the result of skewed perspectives about affordability that are based on rates having been so low for so long. But an odd situation has been happening for the last month or so: Rates are starting to return to the levels these consumers have come to believe are normal, as unexpected as that may have been by experts.

Based on previous predictions, most experts would have expected to see rates getting closer to or even surpassing 4 percent at this point in the year. However, various economic difficulties at home and abroad (mostly the latter) are not only keeping them lower than that, but also driving them down further. One recent examination of mortgage rates found them to be at less than 3.6 percent for the average 30-year fixed home loan, which is the lowest level observed since 2013.

A potential issue
And while that's great news for consumers looking to get into the market today or in the near future, there may be some reason to worry that it will once again create the types of conditions in the market that lead consumers to carry unrealistic expectations of long-term affordability. The potential side effects of such a turn are obvious: As rates rise again – an occurrence that seems inevitable, though the way rates have moved in recent months, one never can tell for sure – consumers will shy away from the market.

That could restrain a more robust housing recovery as rates push back toward pre-recession norms, even if they remain extremely affordable on a historical basis in the meantime. For instance, people may now see rates of 4.5 percent as outlandish and unaffordable. And when compared with rates available for the last two years or so, that would certainly be the case. But in comparison with what the average person was paying prior to the economic downturn – somewhere between 5.5 percent and 6 percent, in most cases – even rates that are significantly higher than they are today still represent a massive savings opportunity.

What's the good news?
Of course, data also suggests that consumers are actually starting to buy homes and lock in the kinds of extremely affordable rates available today en masse, fulfilling long-held expectations of a robust growth for the purchase market. As long as rates stay low, they're quite likely to continue coaxing consumers into the market, but the hope among industry experts is that this will also be true as affordability starts to inevitably decline.

Both rates and prices are likely to start rising in the coming months, but should still close the year being extremely affordable in comparison with long-term averages.

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