Is It Last Call for Low Mortgage Rates?
All good things come to an end—even low mortgage interest rates. They've been steadily rising and are poised to climb even higher this year.
When they do, the cost of buying a home will rise as well. This could make the challenges of today's buyer's market even worse for some prospective purchasers—particularly first-time buyers, having to settle for smaller abodes, fixer-uppers (in the real sense, not the TV sense), and homes farther out where real estate is cheaper.
Some may even be priced out of the market altogether thanks to a toxic combination of soaring home prices and increasing mortgage rates.
After hitting historic lows, average mortgage rates have now reached their highest levels in more than four years. They hit an average 4.43% for 30-year, fixed-rate loans as of March 1, according to Freddie Mac data. This was the highest they've been since Jan. 9, 2014, when they were an average 4.51%.
They're expected to go up even more after the Federal Reserve raises short-term interest rates. The new Fed chairman, Jerome H. Powell, says the Fed is likely to gradually increase them this year. It is expected to bump up rates at least three times this year, in 0.25% increments, beginning this month.
'For the bulk of buyers, it's not going to kill their decision to purchase a home. If anything, it will get them off the fence by creating a sense of urgency,' Higher rates are 'a kick in the pants for you to start thinking seriously [about buying].'
Even a fraction of a percentage point rise quickly adds up. On a $300,000 house with a 30-year fixed mortgage and 20% down payment, the difference between 4% and 5% is $142 a month. That's more than $51,000 during the life of the mortgage.
'Buyers thought they could wait forever because rates were going to stay low forever,' says Palacios. 'They're starting to realize if they're going to buy they should probably buy now.'
It's important to note that mortgage rates are still low. They averaged around 7% from the 1990s through the financial crisis, falling from a high of 18.63% on Oct. 9, 1981.They ped below 5% for the first time in March 2009, before bottoming out at 3.1% on Nov. 21, 2012.
And while they may not return to the 3% range anytime soon, it's also unlikely they'll go into the double digits.
“You should be paying close attention to what is going on in the marketplace, because those rates can move pretty quickly in a short amount of time,” says Freddie Mac's Kiefer. “
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