Thursday, June 21, 2018
Business

Mortgage rates are rising, but there's good news

Ultra low mortgage rates for the past year helped spur the housing recovery. But rates recently started creeping up and then soared in the last week.

WHAT HAPPENED?

The average 30-year fixed mortgage rate just made its biggest one-week jump in 26 years, rising from 3.93 percent to 4.46 percent, mortgage giant Freddie Mac said Thursday. Federal Reserve Chairman Ben Bernanke said last week that the central bank could later this year slow its monthly buying of $85 billion in bonds, triggering Treasury note yields and loan rates to rise.

WHAT IT MEANS

Loan applications have ramped up, as reluctant buyers jump off the fence in hopes of landing a good rate. But if rates climb too high, some buyers might be priced out of the market. That could slow the housing market just when it had begun to pick up speed. Rates are still incredibly low: Since 1976, loan rates have averaged about 8.63 percent. But even a small change can make a big difference. A home buyer who locked in at 3.35 percent last month on a $200,000 loan would pay $881 a month, Bankrate data show. Meanwhile, a buyer who got a loan this week would pay $1,008 a month. Rising interest rates can also sting businesses or government bodies that have to refinance their debt at higher rates. But the increases benefit retirees and others who rely on fixed income investments: Higher rates equal more income.

WHAT'S NEXT?

Loan rates will probably keep climbing. Capital Economics analysts this week bumped their 2014 forecast for 30-year loans up to 5 percent, about where they were in 2009. Recent price jumps for home sales might cool down. But economists don't expect that will send home buyers running for the hills. Rates would have to climb to nearly 7 percent for the median priced home to become unaffordable to the average American family, a Freddie Mac study said.

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