Rising Mortgage Rates Show the Economy is Stabilizing
Economic signs suggest that recovery is finally picking up steam. Claims for unemployment benefits are at their lowest in the last three years, and the unemployment rate has dropped a full percentage point over the last two months.
According to Freddie Mac's weekly survey of
mortgage rates, the encouraging economic competence has been paralleled by a rise in 30-year home loan interest rates, which are averaging over 5% for the first time since April. Just last November we saw the rate hit a 40-year low at around 4%.
As signs of economic improvement manifest, the housing market still continues to struggle and the rising
mortgage rates won't help. Analysts expect that rates will continue to rise to around 5.5% thus dulling incentives to buy homes or refinance mortgage loans.
Since the
Federal Reserve decided to buy $600 billion in government debt to stimulate the economy investors have been demanding higher interest rates on treasury bonds and mortgage-backed securities to abate fears of inflation.
However, experts say that reasonable home prices and a stable job market are more persuasive factors for homebuyers than mortgage loan interest rates. Home prices are predicted to fall another 5% this year.
Though interest rates are still low from a historical perspective, (30 years ago home loan mortgage rates were around 18%) small increases in a short period of time could have disastrous effects on the housing market.
Not until 1991 did the interest rate finally stay consistently bellow 10%. At the height of the real estate boom in 2006 the interest rate was around 6.7%. Experts believe that as the housing market and economy normalize that 30-year mortgage interest rates will stabilize around 6%.
In the meantime, prospective homebuyers with good credit should certainly take advantage of devalued home prices and mortgage rates.
By: Javi Calderon
