Fresh Blow To Housing Market: Mortgage Rates Fast Approaching 5%, WSJ Markets Alert
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With mortgage rates rapidly approaching 5 percent — the highest level in more than seven years — it’s going to be a lot tougher and more expensive soon to buy a house.
More people will be hesitant to buy a home, and this, in turn, will be a blow to the already slumping housing market, according to a Wall Street Journal report.
Buying a home at this rate will be out of reach for many.
The average rate for a 30-year, fixed-rate mortgage rose to 4.9 percent according to mortgage-finance giant Freddie Mac.
“For a house with a $250,000 mortgage, rates of 5% add about $150 to the monthly payments compared with the rate of 4% that borrowers could have had less than a year ago, according to LendingTree Inc., an online loan information site. That excludes taxes and insurance,” WSJ reported.
Looking at the bigger picture, higher interest rates and a slowing housing market are bad for the economy.
“With the escalation of prices, it could be that borrowers are running out of breath,” said Sam Khater, chief economist at Freddie Mac.
Because of the rising rate, there has been an increase in buyers looking to use adjustable-rate mortgages. Adjustable-rate mortgages reset to market rates after a certain number of years. They remain a relatively small part of the mortgage market, though, making up about 12 percent of mortgage originations in the second quarter, according to industry research group Inside Mortgage Finance, WSJ reported.
Rising rates will have far-reaching ramifications, putting a stop to any refinancing boom.
“If rates hit 5 percent, the pool of homeowners who would qualify for and benefit from a refinance will shrink to 1.55 million, according to mortgage-data and technology firm Black Knight Inc. That would be down about 64% since the start of the year, and the smallest pool since 2008,” the WSJ reported.
Millennials in large numbers are opting out of buying homes and renting instead. Why? Because many young people can’t afford to buy a home.
“Earlier this year, Trulia reported that it costs up to 41.2 percent of income to buy a starter home. On top of that, compared to six years ago, starter home prices are 57.9 percent higher, even while the square footage has shrunk,” Yahoo reported.
My experience is people get riled up about home prices and not mortgage rates, but this is a big deal for affordability:
Rates rising 1% in the past year means the *interest cost alone* for Seattle's median house is up $132,000 over a 30-year mortgagehttps://t.co/o3zqOTNAqB
— Mike Rosenberg (@ByRosenberg) October 11, 2018