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The days of ridiculously low mortgage rates are history as Fed signals a pullback on stimulus

Lucy Blair, a 27-year-old employee at a local digital strategy firm, was in no rush to buy an apartment – until last week.

Blair and her fiance are in the hunt for their first home as a married couple and have been on the fence about whether to buy or to rent in Brooklyn.

But word that the Fed will be pulling back on its economic stimulus policies has them worrying about where interest rates are heading.

Now they’re busy scheduling appointments with their broker, Ana Weisberger of Citi Habitats, to tour apartments for sale.

“We always knew we would buy at some point,” Blair said. “This catalyzed the process. We don’t want to be caught with our pants down in a year from now.”

Rising interest rates are the new reality for homebuyers.

Since the beginning of May, with the exception of a small dip last week, rates have been climbing, hitting 3.93% last week, according to Freddie Mac. That’s half a percentage point above where they were earlier this year.

And they’re expected to head up further in the wake of the Fed’s comments last week, marking the end of a year-and-half-long period of ridiculously low rates.

“This historically abnormal period of Nirvana is drawing to a close,” Stan Humphries, chief economist at Zillow.com, told the Daily News.

Mortgage rates are tied to yields on 10-year Treasury bonds, which have been surging in the wake of the Fed’s comments.

What does this all mean for homebuyers in New York?

It’s important to note that while rates are climbing, mortgages are still much cheaper than they were between 2005 and 2007, when rates on 30-year fixed home loans were close to 6%.

Freddie Mac is projecting that the average rate on a 30-year fixed mortgage will hover around 4% during the second half of this year and approach 5% by the end of 2014.

We asked a panel of New York real estate experts to share their thoughts. Here’s what they had to say:

Jonathan Miller, CEO, Miller Samuel

Q. What do you expect to happen to mortgage rates in the wake of the Fed announcement?

A. I think it assures us that mortgage rates will continue to rise.

Just because mortgage rates are likely to rise isn’t a bad thing, either. It’s a sign that the overall economy is finally getting some traction.

Q. Is this a good time to purchase a home or an apartment in New York City?

A. I’ve never been a big believer in market timing. There is no rule of thumb to be applied. The decision has to make sense for the individual.

Can they afford it and does it work within their personal lifestyle plans? The longer the individual intends to stay in the home, assuming they can afford it, the better the reason to purchase.

Q. Where do you expect home prices to be heading now?

A. Up. Even with mortgage rates likely to trend higher over the next few years, chronically low inventory isn’t expected to change significantly anytime soon.

Melissa Cohn, executive vice president, Manhattan division, Guaranteed Rate

Q. What do you expect to happen to mortgage rates in the wake of the Fed announcement?

A. The bond and stock markets have reacted negatively to the Fed’s announcement that it will begin winding down the stimulus program at the end of 2013.

This has caused bond yields to rise to their highest level in over two years. As a result, banks have raised their rates, some significantly.

We have also seen signs of more recovery in the economy, which also hurts mortgage rates.

Even if some rates have gone up by almost half a percent, rates are still at historically low levels.

When the sting of the Fed’s comments wears off and we go back to looking at daily economic trends, it is my belief (and prayer) that the market will calm down a bit and rates settle in to a new “normal” level. Where that “normal” will be, though, will take some weeks to resolve.

Q. Is this a good time to buy?

A. With interest rates still very low and prices on the rise, this is still the right time to buy, especially if you find the perfect apartment.

If rates keep rising and prices head north, the cost of the apartment will only grow. This is a great time to lock into a rate and the current price environment.

Gary Malin, president, Citi Habitats

Q. What do you expect to happen to mortgage rates?

A. In the near term, I would not expect any dramatic change in rates, but they will continue to tick upwards.

The Fed has indicated that if the economy continues to make positive steps towards recovery, and unemployment numbers continue to drop, then they will adjust their policies to reflect this improvement.

However, the economy could stumble in the coming months, and the Fed will revise its plans as a result. Nothing is set in stone.

Q. Is this still a good time to purchase a home or an apartment in New York City?

A. It’s a great time to buy. New York City real estate has proven to be a safe, long-term investment. Although interest rates are climbing slowly, they are still extremely low.

Q. Where do you expect home prices to be heading now?

A. Currently there is a real shortage of inventory on the market and sellers are firmly in control. I expect home prices to continue to trend upwards.

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