Rising interest rates can be a bad thing for several reasons:

• Low interest rates are more beneficial for buyers than low home prices as far as affordability.
• Rising interest rates mean higher home costs.  The higher interest rates mean higher monthly mortgage payments, which means people can’t afford as much home. Combine this with rising home prices and the homes people can afford to buy are now changing.
• Some people may no longer be able to afford to buy a home. With the increasing rates and home prices, some marginal buyers will be knocked out of the market.
• Less people will be able to refinance, so those homeowners that are still underwater, and have not refinanced will not be able to get the great low rates that may help them keep them in their homes.

Rising interest rates can be a good thing for several different reasons.

• Right now people have a false sense of a high mortgage rate. Just a few short years ago 6% was a good rate. We have been spoiled with historically low rates that could not last forever. Even though rates are rising, they are still low.
• If you are a seller, the rising rates and the rising home prices are getting buyers to finally start buying. Buyers realize that the time of the great deal is over and they need to buy now to still get a good deal.
• The loan back up will start ending. So many people were refinancing and that combined with new mortgages had the loan industry all backed up. The rising rates will keep most from refinancing allowing more time for new purchase mortgages.
• Rising rates are a sign that the economy is improving and is also a good sign then for the housing market.

Many people are wondering if all this positive news about the housing market and increase in home prices is setting up the market for another housing bubble. The answer is no.

This market increase is very different in several ways.

• Credit has tightened – prior to the housing bubble, loans were very easy to get and that is not the case today
• Homes for sale were abundant – now the market lacks homes for sales, builders are building, some sellers are selling, but no one can keep up with the demand we are facing right now
• Interest rates are low – the low interest rates are motivating buyers to buy now rather than wait as the interest rates are on the upswing
• Foreclosures are declining – the decline in foreclosures is helping the price of homes to increase

During the current phase of home price increases, the market is very different from the market prior to 2006 and the price increases are healthy market driven increases, rather than being falsely inflated.

Mortgage rates are heading up as are home prices.  See how mortgage rates have changed this year so far and how they are predicted to increase. Take a look at the infographic below from KCM Blog.