Mortgage Interest Rates

Mortgage Interest Rates Are Going Up

According to Freddie Mac’s latest Primary Mortgage Market Survey, the 30-year fixed rate mortgage interest rate has jumped up.  The last few weeks we’ve seen 3.94% to the current higher rate of 4.03%.   Interest rates had been hovering around 3.5% since June, and many are wondering why there has been such a significant increase so quickly. 

Why are mortgage rates going up?  Basically, the better the economy, the higher interest rates will go.

Here’s more…  A presidential election causes uncertainty in the markets as to who will win.  One way that this is noticeable is through the actions of investors.  Investors tend to invest in the safer Treasury Bonds.  Instead of the the more volatile and less predictive stock market.

As a result, the Treasury Bonds interest rate does not need to be as high to entice investors to buy them, so rates go down.  When the elections are over and a President has been elected, investors return to the stock market and other investments, leaving the Treasury to raise interest rates to make the bonds more attractive again.

For a more detailed explanation of the many factors that contribute to whether interest rates go up or down, you can follow this link to Investopedia.

The Good News

Even though rates are just over 4% , higher than they have been in nearly 6 months, they are still slightly below where we started 2016, at 3.97%.  But even at 4% they are still significantly lower than they’ve been over the last 4 decades.  Here’s a chart depicting the average mortgage interest rates by decade.

Historic Mortgage Rates by Decade

Interest rate increases will impact your monthly housing costs when you secure a mortgage to buy a home.  A recent Wall Street Journal article points out that,

“While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.”

Tom Simons, a Senior Economist at Jefferies LLC, touched on another possible outcome for higher rates:

“First-time buyers look at the monthly total, at what they can afford, so if the mortgage is eaten up by a higher interest expense then there’s less left over for price, for the principal.  Buyers will be shopping in a lower price bracket; thus demand could shift a bit.”

Interest rates are impacted by many factors, and even though they have increased recently, rates would have to reach 9.1% for renting to be cheaper than buying.  Rates haven’t been that high since January of 1995.