Mortgage rates are on the rise. What does this mean for the housing market?

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The housing market is in tears.

Months of social distancing and working from home made people desperate for more space, home offices, swimming pools, backyards. And the money was cheap – a combination of the economic uncertainty caused by the pandemic and federal policy had lowered mortgage rates to historically low levels. Some have been able to get 15-year mortgages for as little as 2%, the target inflation rate, said Frank Nothaft, chief economist at real estate analysis firm CoreLogic.

Today, as vaccines roll out and the economic outlook improves, the frenzy is showing signs of abating. It is still a sellers’ market, house prices continue to rise rapidly, and mortgage rates are still lower than they ever were before the pandemic. But rates are more than half a point higher than they were at the January low, and some are seeing a response.

“It’s softened a bit,” real estate agent David Atkins said. “At least as far as people are concerned, ‘I’ll take anything and everything, and whatever I can get my hands on it. Much of this change in attitude, he explained, has to do with the recent hike in mortgage rates.

The average rate on a 30-year fixed-rate mortgage during the week ending April 1 was 3.18%, up from 2.65% in the first week of the year, according to a survey by the company. government sponsored mortgage financing Freddie Mac.

That, combined with soaring home prices – Houston homes sold in February at a median price 12.6% higher than the year before – pushed affordability out of reach for some who would otherwise consider. their first home, Nothaft explained. An increase in house prices means an increase in both the down payment to be saved and the monthly payments that will have to be made.

“There will be homebuyers who say, ‘Oof, this got too expensive for me,’” Nothaft said. “Either I can’t save the money up front or, even though I have it, the mortgage payments have now gotten too high – it’s going to bite too much into my monthly income.” “

This will have an impact on the rate of growth of house prices by the second half of the year, he said. CoreLogic predicts that home prices will stop climbing double digits year on year and settle into something more in line with wage growth.

However, Nothaft believes the inventory added by customers who have kept their homes off the market until they can get vaccinated will help home sales continue at a strong pace. Atkins, for example, had a client in the late 1970s who waited to receive his two COVID shots before putting his house on the market.

Rising mortgage rates also reduce the pool of homeowners who can benefit from refinancing. The number of homeowners that Black Knight, a mortgage technology and data provider, could benefit from refinancing has fallen to 11.1 million (218,000 in the Houston area), the smallest since March 2020. claims during the week ending March 26 had fallen 32 percent from the previous year.

Mortgage rates fell to historically low levels during the pandemic and accompanying recession due to economic uncertainty. When investors are concerned about the future of the economy, they look for safer investments and put money into government bonds and mortgages, which brings rates down.

Now that the latest stimulus bill is pumping money into the economy, the Fed has signaled its willingness to tolerate some inflation and investors are returning to the stock market, allowing rates to adjust to higher levels. normal. They are still relatively low – a year ago the average for a 30-year mortgage was 3.33%, and the year before it was 4.08%.

“Investors have hailed the increase in private jobs and consumer confidence with a shift to equities, which has pushed mortgage rates up,” said George Ratiu, senior economist at SEO site realtor.com , in an email.

Erika Bierschbach, who majored in economics and works in the energy industry, was only tracking these factors when she decided to pull the trigger for a refinance. For most of 2020, she observed that the recession kept rates low. “We were waiting to see what would happen with the pandemic,” she said. Then, at the start of the year, with the rollout of vaccinations, the stock market soaring, and a new stimulus bill on the horizon, she started looking for mortgages.

She is closing on the refinance, which will save her up to $ 600 per month this Friday. “Wow is right,” she said. “I just don’t believe we’ll be at these levels again for a while.

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