Mortgage rates are rising rapidly. “…the Mortgage Bankers Association showed that interest rates for a 30-year fixed mortgage rose to 4.68% last week—the highest rate in two years and up from 4.58% a week earlier.” (SOURCE)
- Market Reaction: The momentum of the real estate recovery has taken hit by the sharp increase of mortgage rates in the last few weeks. Cheap loans, especially those for 30-year fixed mortgages, have been able to keep the real estate market profitable for those buying and refinancing. “After the surge in mortgage rates over the last week, I expect things to calm down a bit,” opines Michael Becker, WCS Funding Group mortgage banker. “While I think markets have overreacted to the (Federal Open Market Committee) statement and Chairman Ben Bernanke’s press conference, it’s going to take some disappointing economic news for the bonds to rally. Since I don’t see anything on the horizon over the next week that fits that bill, I expect mortgage rates to be steady over the next week.” (SOURCE)
- Public Reaction: The rising rates are the most prevalent concern on buyers’ minds as they look at potentially engaging with the market. This issue has skyrocketed above all other concerns in the market notably rising home prices and lack of inventory. There is an interesting reaction of both urgency and stalled behavior. 41% of buyers think the rates will rise too high before they are able to buy so buyers want to act with swiftness and still take advantage of the still below 5% rates, but in conjunction with that, buyers are resisting since they have gotten so used to the bottomed out numbers (3-4%). If rates go above 6%, 56% of potential home buyers will be discouraged.
Scenario: For instance, at 3.35% the monthly payment on a $200,000, 30-year fixed-rate loan is $881; at 4.46% the payment jumps to $1,009 – that’s a 14% jump in the monthly mortgage payment between early May and late June. (SOURCE)
The strongest counter balance we have to the rising rates is the fact that everyone knew they rates could not say that low forever. Economists and real estate professionals have seen the signs on the horizon. The economy as a whole is recovering which means that the markets will stabilize out and as good and the low interest rates were, they were not natural. The low rates came from the Federal Reserve buying bonds and other extraordinary measures to artificially make the market so vibrant.