Mortgage rates have started showing an increasing trend. According to Freddie Mac, in the week ending June 6, the average rate on 30-year fixed rate mortgage moved to 3.91%, highest in a year. The rate on 15-year fixed rate mortgage has also moved up to 3.03%. Even a year ago, mortgage rates were at historic lows. If this rising tendency continues, mortgage loans will be more costly in the near future.
Now the most pertinent question that has cropped up is – “Will the rising rate derail the housing recovery?” Here it is to be noted that though the mortgage rates have started showing an upward trend but still the rates are very low. In comparison to the mortgage rates a decade ago, rates are now still appreciably low. One reason for the still-very-low mortgage rate is the quantitative easing (QE) policy resorted to by the Federal Reserve. Every month, Federal Reserve is buying Treasury bonds and mortgage-backed securities worth of $85 billion. This is keeping a lid on the rate of interest. This is in turn making mortgage loans attractive to the prospective home buyers. Low mortgage rates have helped the prospective home buyers as well as the refinancers to take out relatively less expensive mortgage loans. This has been instrumental in the surge in sale of homes and price rises.
Rates are likely to move up further
Anyways, mortgage rates have started to show a rising trend due to better macroeconomic performance and speculation. Many experts are of the opinion that mortgage rates will continue to rise, though at a modest rate, all through the year. The property market in the Middle America is not likely to be affected much as the mortgage loans are very much affordable there. However, the property markets in the coastal areas are likely to be affected much as the properties in those areas are very expensive. Experts are of the opinion that property sales in the east coast areas like Boston, New York, and Washington D.C. and in the California metro areas are likely to plummet.
There are some positive signs also
Rates are likely to increase in the near future. But, this is not necessarily a bad thing. It is true that rising rate will slow down the home sales, but it will eliminate the frothiness in the housing market. Mortgage rates are still very low and we are still in very early stage of housing market recovery. The housing market recovery which has started in the form of residential construction, remodeling and new home building have not yet stopped. This is likely to continue and likely to give a boost to the economy at least in the near future.