Rising mortgage rates shouldn’t put homes out of reach
While the markets should and will ultimately adjust to whatever conditions exist in the real estate market, the adjustment takes time.
We are starting to see the earliest evidence of the damage current mortgage rates has had on home sales, and frankly, it’s a little worrisome. Rising mortgage rates don’t do much to encourage potential homebuyers and the eventual housing moving.
That said, there is nothing wrong with a 30-year fixed-rate mortgage at 5 percent or thereabouts. In fact, before the Fed began directly manipulating the mortgage market in 2008, the lowest conforming 30-year fixed-rate mortgage we “naturally” achieved was 5.24 percent back in June 2003 … a 37-year low at the time.
Mortgage rates still historically low
- 30-year fixed-rate mortgages: The overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbos) rose by 16 basis points (0.16 percent) to 4.75 percent, the highest rate seen since the week ending July 29, 2011.
- 15-year fixed-rate mortgages: The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) spiked by 15 basis points (0.15 percent), landing at 3.80 percent for the week.
- FHA mortgages: Popular FHA-backed 30-year fixed-rate mortgages put in an 11 basis point rise of their own, climbing to 4.36 percent.
- 5/1 Hybrid ARM: The overall 5/1 Hybrid ARM moved by a more-subdued one-tenth of one percentage point to 3.42 percent for the week.
How important are rock-bottom mortgage rates?
How important have rock-bottom mortgage rates been to the economy? It is hard to underestimate their value as an economic kick-starter.
Refinancing: We know that refinancing of higher-rate mortgages has freed up billions in household dollars for spending on things like cars, not to mention allowing the retirement of other higher-cost debts which cause fiscal drag. Homeowners’ finances have been measurably improved by the refinancing process.
Home buying: We also know that demand for homes, driven by multi-generational lows for mortgage rates has helped revive home sales from recession levels and served to allow home prices to rise appreciably over the last year.
This in turn helped some resolve a portion of the housing market’s underwater mortgage trouble, served to encourage homebuilders to start engaging the economy again, and even helped to put Fannie and Freddie back in the black, as new performing mortgages replaced old non-performing ones.
The week ahead…
If we are lucky, the light calendar of data and the impending holiday weekend will mostly keep mortgage rates where they are or thereabouts this week. We may be optimistic given the still-unsettled state of the market, but we think we have a chance for little to no change in average rates this week.