Last week mortgage rates jumped to their highest level since 2011, signaling a shift from a time of very cheap loans to a higher rate environment that could negatively impact first-time buyers and slow home price appreciation.
The average rate for a 30-year fixed-rate mortgage rose to 4.61% last week from 4.55% last week, according to data released Thursday by mortgage-finance giant Freddie Mac. The jump this year reflects an abrupt departure from a long period of declining rates that began during the financial crisis.
Rates bottomed out in late 2012 at 3.31% and rose to 3.99% as recently as January. The spike this year has been faster than many economists predicted as a surging economy, the prospect of wage gains and a steep rise in prices for commodities such as lumber and gasoline stir up inflation worries.
In a Realtor.com article written by Laura Kusisto and Christina Rexrode, the concern among economists is that higher rates will prompt homeowners to keep their low-rate mortgages rather than trade up for better properties. As rates approach 5%, the risk of the phenomenon known as rate lock grows, economists said.
A one percentage point increase in rates can lead to a reduction in home sales of 7% to 8%, according to Lawrence Yun, chief economist at the National Association of Realtors. The recent increases in home prices and mortgage rates could especially hurt first-time and moderate-income borrowers, economists said.
The article goes on to say that until now, price gains have shown little sign of slowing. The S&P CoreLogic Case-Shiller National Home Price Index, which measures typical home prices across the nation, rose 6.3% in February, up from a 6.1% year-over-year increase in January.
What might seem like a small increase in mortgage rates can have a big effect on monthly payments. A 4% rate on a $250,000 loan translates to a monthly payment of $1,194, according to LendingTree Inc., an online loan information site. At 5%, the monthly payment would go up to $1,342, excluding taxes and insurance.
The monthly increase is more pronounced on higher-priced homes. According to LendingTree, a 4% rate on a $500,000 loan would create a monthly payment of $2,387. At 5%, the monthly payment would swell to $2,684.
The yield on the 10-year Treasury note, which tends to influence the 30-year mortgage rate, has been rising even more steeply recently. The yield on the 10-year Treasury note edged above 3.1% this week, its highest close since 2011.
Moreover, the Federal Reserve has signaled it will raise short-term rates three to four times this year and potentially three times next year. Mortgage purchase applications fell 2% in the week ended May 11, the fourth straight weekly decrease, according to the Mortgage Bankers Association.
While in a typical market buyers can simply choose to buy a smaller, less expensive home that is a challenge in today’s market because inventories are near all-time lows. “The problem in today’s market is there aren’t many affordable homes on the market. Buyers have less wiggle room,” said Nela Richardson, chief economist at Redfin.
Mortgage Rates in Florida – FL Home Loans | Zillow: https://www.zillow.com
Tampa Bay homes prices soar by double-digits in January: www.tampabay.com
It’s not clear how mortgage rates 2018 will impact the housing market: https://www.domainhomes.com