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Kathy Orton
Reporter and writer covering the Washington metropolitan area real estate market
Thomas Heath
Journalist and local affairs columnist, writer on entrepreneurs and businesses in the Washington metropolitan area
The extremely low mortgage interest rates that fueled the recovery in the housing market after the Great Recession are on the rise, posing a potential threat to the economic boom.
The 30-year fixed-rate mortgage, a popular mortgage held by millions of Americans, now stands at 4.6%, slightly below the five-year high of 4.66% set in May. According to data Freddie Mac, it is significantly higher than the historic low of 3.31% recorded six years ago. Data from other analysts suggest that new homeowners could face even higher rates.
Even a modest hike in the mortgage rate can result in monthly payments, resulting in a significant training effect across the economy.
"Rising rates, combined with rising house prices in most US markets, are causing accessibility issues, especially for first-time homebuyers," said Eric Schuppenhauer, President of the Bank. mortgage.
Freddie Mac tracked data over the first 40 years of the year 2018. Mortgage rates began the year with the most steady increase of the past 40 years. Rates went from 4% to 4.66% before stabilizing during the summer.
[What the 10-year Treasury yield means to you? Real money.]
The increase in mortgage rates is both good and bad. They can potentially dampen housing prices, making more housing affordable for more people. For someone who buys a home now, high rates reduce the amounts to be spent on expenses such as dinners, travel, appliances, and clothing.
"Last year, if you had a median [priced] the existing house cost $ 250,000 and you dropped 20%, you borrowed $ 200,000, "said Brett Ryan, an economist at Deutsche Bank. "At 4%, this payment was about $ 950 a month. Today, the median price of existing homes is about $ 260,000 and the interest rate you pay on the loan is 4.6%, which means that your monthly payment is of about $ 1,060, just over $ 100 a year.
That's a good part of the $ 2,000 that Republicans perceived as the annual savings from last year's tax cut for a typical family of four.
The strong economy can withstand the pressure, at least for now, according to some analysts.
"At this level, we do not think it should really have an impact on consumer spending," said Craig Holke, investment strategy analyst at the Wells Fargo Investment Institute. "If rates continue to rise, at some point this could become a headwind."
Record high unemployment, government borrowing, and trade talks between the United States and China are largely responsible for the rise in mortgage rates.
"At some point, each of these factors could potentially cause a deterioration in the economy," said Sam Khater, chief economist for Freddie Mac. "All these factors. . . are risky. "
[Mortgage rates reach highs not seen since early August]
Experts are eager to point out that the market is not heading towards a recurrence of the 2008 real estate crash. On the one hand, there are fewer real estate speculators. Loan standards have tightened to help people pay for their purchases.
Khater expects mortgage rates to continue to rise, probably above 5% in 2019.
"We should see constant or persistent forces pushing rates higher the rest of the year, probably not at the same pace as earlier this year," he said.
The recovery in rates has not had much immediate effect on the housing market.
"My buyers are eager to enter a new home before the end of the year because of unpredictable interest rates, but their goals are thwarted by the lack of housing," said Gitika Kaul. , real estate agent at Wydler Brothers. "Thus, even if buyers are aware of the impact of the rise in rates on purchasing power, the major problem continues to arise with regard to supply on the market."
Derrick Swaak, real estate agent at TTR Sotheby's International Realty, also said the offer had more influence on the real estate market than rates. But he warned that if rates continued to rise, they would have an impact.
"If they go north by 5%, then we'll start hearing that," Swaak said, but the rate hike has "no measurable effect on people's decisions."
In contrast, Deutsche Bank's Ryan said the property market was not as big in the economy as it was in the early 2000s, before the financial crisis. The homeownership rate declined by five percentage points from its peak in 2004, and home equity loans declined by about 40 percent from the peak of 2009.
Despite the rapid rise, rates are still relatively low. For anyone who bought a house in the 70s or 80s, when mortgage rates were double-digit, reaching a historic high of 18.63% in 1981, rates remain reasonable.
"They are extremely weak," said Khater. "The monthly payment remains affordable. I think the hurdle for many buyers is not the monthly payment. The hurdle is a down payment. As prices continue to rise, it gets worse. "
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