It’s officially summertime and the temperatures are not the only thing on the rise. The week of June 24 saw the biggest increase in mortgage rates in 26 years.
“In the short run, [the week of June 24] half a percentage point increase could push some home shoppers out of the market while spurring others to act before rates go higher, says John Burns, CEO of John Burns Real Estate Consulting,” Julie Schmit reports in her USA Today article. “Longer term, higher rates and more homes for sale could slow gains in home prices, whose rapid rise has spurred fears of another housing bubble.”
In the same USA Today article, Schmit reports that, “Higher rates won’t stop the housing market recovery, however, says Freddie Mac economist Frank Nothaft. It has ‘enough momentum to continue,’ but sales volume and home price appreciation will be ‘less than what would’ve occurred,’ he says.”
Even with this increase in rates, the percentages seen now are still low compared to the last forty years. Here you can compare 30-year fixed-mortgage rates since 1971. According to a Freddie Mac analysis, rates would have to be near 7% before becoming unaffordable to families earning the median income in most parts of the country. Higher rates will of course have more of an impact in cities that have a higher cost of living. I’m sure my fellow Jacksonville residents are very thankful, as am I, we don’t live in “America’s Most Overpriced Cities” according to Forbes. Or, Daily Finance’s list of “The 10 Most Expensive Cities in the United States.”
There are two things likely to happen with mortgage rates being on the rise. First, some buyers will rush to make a purchase on a new home in hopes of accepting the rates before they go any higher. Ultimately, if the rates continue to increase, prices of homes will eventually decrease because many buyers won’t be able to afford as much with the higher rates. For this reason, prices are likely to stay the same for the next six to 12 months. If you’re still nervous about these higher mortgage rates, read this article about how higher rates will not affect housing affordability.
Interested in what makes interest rates rise? Here is an article published on the Forbes website.