[ad_1]
Mortgage rates rose on a weekly basis, even as President Trump had called on the Federal Reserve to consider its target interest rates as negative.
The 30-year fixed rate mortgage averaged 3.56% for the week ending Sept. 12, up 7 basis points from the previous week, Freddie Mac.
HSFC + 3.96%
reported Thursday.
According to Freddie Mac, the 15-year fixed rate mortgage has jumped 9 basis points to reach an average of 3.09%. The 5/1 adjustable rate mortgage rate averaged 3.36%, up 6 basis points.
Mortgage rates roughly follow the direction of the 10-year Treasury Bill
TMUBMUSD10Y, + 1.54%
. The 10-year note yield has generally declined since mid-August.
Low rates have provided a lifeline on the housing market over the past few months as they have helped alleviate affordability issues for homebuyers. Mortgage applications for the purchase of a home increased by 9% over last year, according to the Mortgage Bankers Association.
"Although there has been a material weakness in the manufacturing sector and a lingering uncertainty in trade, the American consumer has shown up to now resilient with a demand to buy of solid homes, "said Freddie Mac.
Read more: The real estate market in this city is the least likely to shrink during the next recession
The rise in mortgage rates this week is just the tenth case where rates have risen week-over-year this year. And the increases could continue to be a rarity in the coming weeks and months, depending on the decision-making process of the Federal Reserve.
The Federal Reserve should still reduce the benchmark interest rate by 25 basis points at the end of the month, despite signs of renewed inflation. Some analysts now predict that further interest rate cuts could be considered, due to concerns about trade and the global economy.
Nonetheless, President Trump continued his attacks on the central bank, becoming the first US president to welcome lower interest rates.
Of course, Trump probably did not talk about mortgage rates when he made these remarks. But what happens to mortgage rates if the country's benchmark interest rate is below zero?
Denmark provides us with a clue. The Scandinavian country's Jyske Bank started offering a 10-year fixed rate mortgage at a negative 0.5% rate last month. At the same time, another bank, Nordea Bank, offered Danish buyers a 20-year, non-interest-bearing fixed rate mortgage.
Borrowers continue to make monthly payments when mortgage rates become negative – the interest rate only reduces the principal they owe to the lender.
But a negative interest rate environment would not be ideal for the US housing market. For starters, this could lead people to use riskier saving methods because bank deposit rates would also be negative in such a scenario. Lenders would become more chic with the loans they would offer because it would cost them money to make loans.
Housing prices should also rise in a low-rate environment. This is what happened in Denmark. Given that many potential homebuyers are already out of market prices, further price increases would worsen the situation, regardless of the return on the loan.
Even if the Fed pushed back its key rate at some point, it would take some time before such a low rate appeared on the mortgage market. It took seven years in Denmark.
[ad_2]
Source link