In a housing market on the road to recovery, there has been recent concern that the rising interest rates will affect the housing market negatively. Rates that were once 3 ¾ percent have now risen to nearly 5% in less than a month.
Chief Economist at Trulia, Jed Kolko, stated to CNBC, that 5 % is a historically low rate. He went on to say in the ‘Squawk-Box’ interview, that we may see a slight decrease in buying due to rate going up however, it will be a delayed affect.
"The big effect it has right away is it discourages people from refinancing," referring to slightly larger mortgages. However the silver lining in the cloud could be if there are fewer refi’s, the banks may loosen their lending regulations.
He goes on to say that borrowers with great credit have higher likelihood of attaining a loan now than a year ago. Kolko emphasized that being approved for a higher interest rate is still better than being turned down at 3 ½.
Bankrate, an investment and mortgage tracking firm, currently shows a fixed 30year mortgage at 4.51%.
Rising interest rates are not something to shy away from even if sales slowdown for a period, but rather signs of a strengthening economy. Another concern the chief economist addressed was, "Getting the government out of guaranteeing or insuring almost all mortgages, is very important. But it's going to be a long-term process. It's politically messy."
To compare with other market sectors, mortgage rates seem to be trending the same as bond yields. According to the Federal Reserve Chairman, Ben Bernanke, they will decrease their bond purchasing activity as the economy continues to show improvement. The 10 year Treasury hit nearly 3% in June 2013, the highest level since August of 2011.
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