This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How Higher Rates Touch Consumers, Firms, Investors

â¿¿ CONSUMERS.

The main impact on consumers will likely be higher mortgage rates. Rates on auto loans, student loans and credit cards probably won't rise much soon. They're more closely tied to the short-term rate the Fed controls. That rate isn't expected to rise before 2015.

The average rate on a 30-year mortgage jumped from a record low of 3.31 percent in November to 3.98 percent last week, according to mortgage giant Freddie Mac. That's the highest point in more than a year.

Mortgage applications fell 3.3 percent last week, according to the Mortgage Bankers Association, though they're still up from their level a year ago.

But economists say the housing recovery can withstand higher rates. At an annualized rate, sales of previously occupied homes topped 5 million in May for the first time in 3½ years.

Steady job gains and solid consumer confidence should fuel sales in coming months, even if rates are higher.

"It's that improving economy that's bringing people back into the housing market," said Greg McBride, senior financial analyst at Bankrate.com. "The recent rise in mortgage rates does not negate that."

The biggest barrier for many home buyers has been difficulty obtaining a mortgage. Banks have tightened lending standards since the financial crisis erupted in 2008. Higher loan rates would allow banks to make more from mortgage lending and could lead them to lend more freely.

"The irony is that higher rates are likely to mean more people can get mortgages," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.

â¿¿ SAVERS.

Higher rates generally benefit those with much of their money in savings. They can earn more on bond investments, CDs and savings accounts.

But savers aren't likely to enjoy much benefit soon. Banks already have plenty of deposits, McBride said. They don't need to boost rates on CDs or bank accounts to attract more cash.

2 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs