Mortgage rates have been scraping the cellar floor in recent years, bottoming out at around 3.5 percent for 30-year loans. Economics 101 says cheap money can’t last forever and, sure enough, goverment backed mortgage giant Freddie Mac reported last week that fixed rates jumped, now up a full percentage point, to 4.5 percent
For the average homebuyer, that’s not trivial. On a $270,000 loan, roughly the national median price of a single family home, it will boost monthly interest payments by around $125 a month. That could be just enough to deter a first-time homebuyer or to eat into the savings of families trying to refinance their homes before rates get any higher.
In housing finance circles, there’s been a lively debate over the recent surge in housing prices: Is the sector’s recovery real – that is, built on market fundamentals? Or are we seeing yet another housing bubble inflated by the Fed’s policy of monetary easing?
Surging interest rates – and all indications are they aren’t going back down – will likely give us the answer by testing the resilience of U.S. housing markets. Here are some key indicators housing experts will be keeping their eyes on:
What happens to credit that many claim is already too tight? The idea that credit is too tight – that capable borrowers can’t get mortgage loans despite low interest rates – is widespread, but is it really true? In fact, the real issue may be bank origination capacity, not credit.
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