Mortgage Rate and Housing Price Cycles Play Out in New Jersey

By Richard Barrington
Local Lender Columnist
Jun 6, 2007
With reports that housing activity has been firming up lately, New Jersey may be witnessing the cyclical relationship between mortgage rates and housing prices. Understanding this relationship might help you make timing decisions about refinancing.

Economic forces do not follow a road map; certainly, no two cycles are the same. Therefore, describing cyclical relationships should not imply that these things play out like clockwork. However, thinking in terms of cycles can help one understand the natural ebb and flow of things like the housing market.

As Mortgage Rates Fall, New Jersey Housing Market Finds Support

Mortgage rates are now half a percentage point lower than they were at the middle of last year. Meanwhile, there are early indications that home buying activity in New Jersey is picking up in 2007--the first step toward firming up home prices.

These events are not unrelated. Mortgage rates play an important role in the housing market. Like all interest rates, mortgage rates have a tendency to decline during soft economic periods, and to increase when economic activity is strong. Lower mortgage rates, in turn, make housing more affordable, and thus help stimulate housing demand.

Strategic Considerations for Refinancing

Understanding these cycles can help you make refinancing decisions. For example, now that mortgage rates have fallen, you might want to take advantage by refinancing at those lower rates. On the other hand, if you are looking to tap into the equity in your home, refinancing after prices have firmed up might improve your equity position.

Keep in mind though, that if you wait too long you might find that increased demand has driven mortgage rates back up. The thing about cycles is that nothing stays in one place for long. It pays to follow developments actively, to be ready to act when conditions are favorable.

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.