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The Mortgage Bankers Association said this week that the average 30-year fixed home mortgage rate reached 5.05%, the highest level since February 2011. Federal mortgage buyer Freddie Mac said the rates applicable to 30-year fixed mortgages now stand at 4.9%, also a seven-year high.
Mortgage rates are rising thanks to a healthy economy. The unemployment rate is at its lowest level in nearly half a century and wages are rising. Consumers spend and businesses invest.
This led the US Federal Reserve to raise short-term interest rates, and long-term bond yields that affect mortgage rates increased during the process.
The rise in mortgage rates is only one element of the new market cycle: interest rates are rising and equity investors are eliminating the risks of their portfolios.
These may be signs of caution, but they respond to powerful economic factors. The Fed is raising rates to make sure the economy does not overheat.
But now that mortgages have crossed the threshold of 5%, will it scare potential buyers?
Rates are still relatively low. The 30-year average mortgage rate hovered around 6.5% in 2007, before the collapse of the real estate market that had led to the Great Recession.
But housing prices are starting to cool in many markets across the country. Prices do not increase as fast in New York, Chicago and Washington.
Buyers seem reluctant to pay too much, especially now that a mortgage will cost them more.
Freddie Mac added last month that "the housing market has essentially stagnated".
And that might not improve sooner. Freddie Mac said he expects global sales of homes (new and existing) to fall by nearly 1% this year, mainly due to lack of affordable housing in the market and rising mortgage rates.
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