Mortgage rates are now sitting solidly at the highest level in two years and could move even higher in the coming weeks.
Granted, December is
not exactly the hottest season for the housing market — homes don't top
the holiday gift list — but in January, all eyes move to the
all-important spring season. This, coming after the Federal Reserve's expected rate increase on Wednesday.
Even before a Fed move,
the average rate on the popular 30-year fixed mortgage shot up from
record lows immediately after the presidential election, as investors
piled into the stock market and sold out of the bond market [mortgage
rates loosely follow the yield of the U.S. 10-year Treasury].
They then continued to move
slowly higher, with the resulting move going from about 3.5 percent to
now 4.25 percent. The last time rates moved by that much, in June 2013,
home sales suffered and house price gains dropped by half.
This time around,
however, there is great debate over whether rising rates really matter
to housing. After all, increasing rates are indicative of a stronger
economy, and a stronger economy favors housing.
"If interest rates are rising because the economy is
growing more rapidly, then, typically, incomes also rise, and the rise
in incomes offset the increase in the size of the mortgage payment, and
housing goes just fine," said Doug Duncan, chief economist at Fannie
Mae, in a recent interview with National Mortgage News.
Income growth is
surely a driving factor for home-ownership, but buying a home is the most
emotional purchase a consumer can make. While a majority of current and
prospective homeowners view the U.S. real estate market favorably,
there is greater concern about how an increase in the Fed's benchmark
interest rate, expected to be announced Wednesday, will hit housing
affordability.
A report released
Tuesday by Berkshire Hathaway Home Services, a real estate brokerage,
found 76 percent of current homeowners and 79 percent of prospective
homeowners cite increasing interest rates as a challenge impacting
today's housing market; those are 16 and 8 percentage-point jumps,
respectively, from the same time last year — just before the central
bank raised its benchmark rate for the first time in nearly a decade.
The survey also showed
an increased number of buyers and owners would feel anxious if rates
were to rise further. Perception is everything in housing.
"Mortgage rates
remain near historic lows, although it may not seem that way to recent,
first-time buyers and those considering a home purchase," said Stephen
Phillips, president of Berkshire Hathaway Home Services.
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