Dear Friends,
If you are not aware of the recent increase in interest rates – fixed U.S. mortgage rates jumped to the highest level this year,…signaling that the Federal Reserve’s plan to lower borrowing costs has stalled.
The average 30-year rate rose to 5.29% from 4.91% percent a week earlier. The last time the rate was higher was Dec. 11, when it was 5.47%. (The average 15-year rate rose to 4.79% from 4.53%.)
That’s quite a jump, and the more rates go up, the more home prices will need to go down to equalize consumers’ payments. It’s those payments that have brought a level of stability in housing unit sales. Rising rates may deepen the U.S. housing slump and sideline consumers hoping to refinance or purchase their first house. The number of Americans signing contracts to buy previously owned homes climbed 6.7% in April, largely on cheaper financing costs, according to the National Association of Realtors.
This week’s rate increase translates into an additional $32 a month for a buyer purchasing the median-priced U.S. home of $170k with a 20% down payment.
If people hear that rates are going up, experts speculate that buyers will hesitate in the short term, and after a while the reality sets in that 5.5% is much better than 8% (which was the case 10yrs ago.)
Interest Rates Climb,…Why?
So why did the rates go up? Well,…yields on the benchmark 10-year Treasury note and Fannie Mae mortgage bonds are higher than they were before. Back in March, the Federal Reserve said it would buy as much as $1.25 trillion in mortgage-backed securities to help drive down borrowing costs. The Fed’s program, along with a plan to buy as much as $300 billion in Treasury securities, helped push rates to a record low 4.78% twice in April. Policymakers may be forced to increase purchases of securities if mortgage purchase applications, pending home sales and purchases of new and existing homes fade,…experts say. But I would not lean on this as a crutch to wait and see. FOOT NOTE: What Effect did the FEDs have? Back on March 17, the central bank’s purchases of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae brought down the yields on those securities; which allowed lenders to reduce the rates on new home loans (data compiled by Bloomberg show.)
What does this mean to me?
It is possible that the days of seeing rates in the 4 percentile are gone. Many buyers and home owners that sat on the fence to see if rates would go lower, may have missed an opportunity that (more than likely) will never be seen again. The question now is,…do we wait with foolish hope as before – and once again “pray” that rates fall back to where they were? Or,…do we use sound judgment and facts, and get moving, and take advantage of what are still “historically low rates.”
Be advised. Research. Make the right decision.
For more information,
give Vicki or Brandi a call at 832-492-0700 or 281-682-6069