It’s amazing how humans adapt to situations and consider them the new normal. Although mortgage interest rates are at near historic lows, a poll last month showed that 83 percent of U.S. homeowners saw nothing unusual in mortgage interest rates below 5 percent. Twenty-seven percent of respondents said a normal range is between 3 and 4 percent. For the survey, real estate brokerage Redfin queried both experienced and first-time homeowners in 22 major metropolitan areas.


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Mortgage interest rates have risen about a full point, since being at historic lows a year ago, to 4.41 percent today. In May 1990 the rate was 10.45 percent. It wasn’t until May 2010 that it dropped below 5 percent.

Why 4 percent is not the new normal

Why did the rates drop? It wasn’t by chance. On September 15, 2008 Lehman Brothers declared bankruptcy. A few days later, the Federal Reserve Bank bailed out insurance giant AIG. The Dow Jones Industrial Average plunged 777 points on September 29, 2008. It took a couple of months, but on November 25, 2008 the U. S. Federal Reserve Bank unveiled a program of “quantitative easing” aimed to shore up both lending and the housing markets by lowering the costs of borrowing. The plan was for the Fed to buy up billions in government debt and mortgage-backed securities.

It is a program that is still in effect, although in December the Fed announced that it would start to taper its purchases from $85 billion of bonds a month to $75 billion, because the economy is improving.

The chances are overwhelming that we are not about to see mortgage interest rates in the 3 percent range any time again soon, but, at around 4.5 percent, as they are today, the rates are still a bargain.  If you are ready, willing and able to buy a home this January, but you are holding off because you’re listening to the Cassandras who predict that the economy will collapse in 2014, here is a more likely scenario: The economy will keep gradually improving, and interest rates will keep rising. The Mortgage Banker’s Association expects mortgage interest rates to top 5 percent by the third quarter of this year.

Americans polled last month in the Fannie Mae National Housing Survey expect that home prices would also keep rising in 2014. Forty-nine percent anticipate an average appreciation of 3.2 percent. To put this number in perspective, in December 2012, participants in the survey thought that home values would rise 2.6 percent in 2013. That assessment grossly underestimated the appreciation in U.S. housing. In 2013 home values climbed an average of 10 percent nationwide, while cities including Los Angeles, San Francisco and Phoenix watched values shoot up by 20 percent or more.

So, is 4 percent the new normal? No. If you want a home, now is the best time to buy. Get ready and go for it. To delay will mean you’ll pay more.

Here are the best rates on a home equity line of credit.

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