There’s been some good news in the housing market recently, with prices and sales picking up. But there’s a fly in the ointment as well — mortgage rates are rising.
The average 30-year fixed-rate mortgage has gone up to 5.28%, from 5.143% a week ago, according to the BankingMyWay.com survey. The Federal Reserve’s exit from the mortgage-backed securities market is one factor, along with the improving economy.
But the increase, the largest since 2008, raises a question: will higher rates discourage buyers, dampening recovery in the housing market?
It’s probably too soon to become alarmed. At 5.28%, it would cost $5.54 a month for every $1,000 you borrowed, compared to $5.37 at the 5% rate of a few weeks ago. Monthly payments on a $300,000 loan would have gone from $1,611 to $1,662, the cost of one modest dinner out for Mr. and Mrs. Homeowner.
That’s not serious enough to drive home buyers to the sidelines.
But there’s no denying the fact that as rates go higher, shoppers have less to spend. For now, the threat of higher rates could be good for the housing market, spurring people to buy before rates go up more.
HSH Associates, the mortgage-tracking firm, notes that, “Underlying interest rates which influence mortgage rates continue to tick higher.” The 10-year U.S. Treasury note now yields about 4%, the highest since November 2008. The last time the yield was this high, 30-year fixed loans charged 6.38%. Market conditions are more favorable to low rates now than they were then, HSH says.
Still, rates seem more likely to rise than to fall.