Mortgage-rate increases have been a big scare for some, but recent analysis suggests they may not have that much of an impact.
The continuing decline of mortgage rates was a welcome sign of consistency in an increasingly chaotic market. Amidst foreclosures, settlements, REOs and shadow inventories, we all seemed to grow comfortable with the fact that come Thursday, Freddie Mac would announce another fall in the 30-year and 15-year FRM averages that would result in another historical low.
The pleasant economic news of the last couple weeks, though, has led to a rise in Treasury yields, and interest rates have gone up as a result. Standard housing policy, particularly in today’s market, is that rates should be as low possible to stimulate home buying; however, as Diana Olick pointed out on CNBC, it’s not necessarily that simple. After all, positive economic developments, which lead to more jobs, higher incomes and more opportunities to buy homes, inevitably drive rates up.
Olick, then, asks a key question – does an increase in interest rates in the present housing market pose problems for the housing recovery?
According to Peter Boockvar at Miller Tabak, not really. Though higher rates will undoubtedly mean higher payments, the recent increases in mortgage rates would be relatively negligible, at least compared to the demand-crushing increases that some are fearing.
“We will definitely see a freeze up in refi’s immediately, but the decision on a purchase still won’t be impacted until rates get at least to 4.5 percent I believe,” Boockvar said. “Assuming a $200k mortgage, going from 4 to 4.5 percent in mortgage rate adds about $60 per month to one’s payments, and while an extra $700 per year matters, I’m not sure if it’s a deal breaker.”
Frank Nothaft, though, the chief economist at Freddie Mac, said higher rates could actually be a boon for housing, the final push some prospective buyers need to go out and buy property.
“When rates tick up, you may see some potential home buyers who have been sitting on the sidelines, suddenly they may get up, as they are concerned that maybe this is the beginning of a trend, and they don’t want to miss out on these 60-year low mortgage rates,” Nothaft said. “In the near term it can encourage buyers.”
Plus, not many analysts are predicting rates to increase far beyond the quarter of a percent that they have the last couple weeks. So maybe rates will rise just enough to stimulate housing, which would be the irony to end all ironies in the saga of the post-boom housing market.