Modestly rising mortgage rates are increasing the cost of buying a home. However, economists are saying the increase is unlikely to derail the U.S. housing recovery.
Mortgage rates have jumped above 4% for the first time in about a year, hitting 4.15% in the first week of June, up from 3.59% five weeks earlier, according to the Mortgage Bankers Association. The rise represents a 15% increase in the cost of borrowing, or around $50 in the average monthly payment on a $192,800 home, the median price of a previously owned home in April.
While the rise in mortgage rates remains restrained for now, any prohibitive increase could hurt the housing market and the broader economy, which has been buoyed by the real-estate rebound. Already, the recent spike in mortgage rates has produced a sharp drop in refinancing activity, which is much more sensitive to rate increases.
Low mortgage rates have allowed home buyers to absorb the double-digit percentage rise in prices seen in many regions over the past year. A rule of thumb holds that every one-percentage-point increase in mortgage rates makes homes about 10% more expensive for buyers.
Even with the recent jump, economists say, mortgage rates are still extremely low—close to half-century lows. Indeed, applications for home loans, while down slightly between early June and early May, are up 14% from a year ago.
Contact an On Q Financial Inc. Mortgage Consultant today to take advantage of these rates while you still can!