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When 2013 began, King County homebuyers were practically in Candy Land.

They were purchasing homes for a median price of $350,000 — nearly 37 percent lower than their July 2007 peak — according to the Northwest Multiple Listing Service (NWMLS).

Economic reports were improving and buyers took note. They were finally ready to go out and buy the home of their dreams.

With rental costs increasing and interest rates averaging 3.34 percent, a wave of homebuyers caused multiple offers to become the norm.

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Homebuilders who had been wary of bringing new inventory to market during the downturn began to build again.

As these conditions were coalescing to create an attractive buying opportunity, many prospective buyers found themselves locked out of the housing market by tightened home-lending standards.

In response to several factors that influenced the housing bubble in the past decade, the federal government has steadily and consistently increased regulations and requirements for both lenders and borrowers.

While these new regulations have certainly increased the costs of a loan to the consumer, the intent of the new regulations is positive, and in the long term they should create a healthier real-estate market.

The mortgage industry is still digesting the onslaught of these new regulations as it works to implement each new guideline and regulation.

Since 2008, the Federal Reserve has been purchasing mortgage-backed securities (MBS). We are now on the third round of this quantitative easing, and the Federal Reserve is currently buying $85 billion per month of MBS.

This process has created an environment in which interest rates have been unnaturally low in hopes of stimulating the economy.

As recently as May, interest rates had been pushed down to the mid-3 percents. In mid-May, the Federal Reserve considered pulling back its purchase of MBS. Since then, interest rates have quickly increased to a recent high of 4.58 percent, according to Freddie Mac.

What does this mean for the average local homebuyer?

In January, according to the NWMLS, King County had a median home price of $350,000. If a buyer had a 20-percent down payment and an interest rate of 3.34 percent on a home of this value, the monthly principal-and-interest (P&I) payment would have been $1,232.45.

Fast forward to July, and we find the median King County home price is now $434,000, 24 percent higher than it was in January.

If a homebuyer wanted to buy the same house today at the current asking price, with a 20-percent down payment, and at the current average interest rate of approximately 4.4 percent, their P&I payment would be $1,738.64, over $500 more per month than in January.

So, while the price of the home has increased by 24 percent, the actual monthly increase of the mortgage payment has increased by 41 percent. That increase is the affordability factor that a buyer has to consider when selecting a home.

While this may seem like it would cause an end to the run-up in home prices (we have seen some recent slowdown), this could just be the beginning of a longer trend toward higher home values and interest rates.

The national Mortgage Bankers Association predicts that the rate on a 30-year fixed-rate mortgage will increase to 4.9 percent in 2014, which would reflect an increase, but also a potential leveling off of the interest-rate spikes we’ve seen recently.

The local housing market has definitely experienced a swing in the first half of 2013. The question is: has it returned to a balance? Time will tell, but by most accounts it certainly appears to be on the right path.

Brian Pahlow is a loan officer at Cornerstone Home Lending, Inc., and is a member of the New Home Council. “Market Matters” is the council’s weekly column offering insight into the housing market. For more information on homebuying, visit

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