Fresh Blow To Housing Market: Mortgage Rates Fast Approaching 5%, WSJ Markets Alert

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Written by Ann Brown

Listen to GHOGH with Jamarlin Martin | Episode 29: Alfred Liggins

Jamarlin talks to Alfred Liggins, CEO of Urban One (NASDAQ: UONEK) about why he never merged with BET and whether going public inspired the Fox series “Empire”. They discuss the Democratic Party neglecting Black media when it comes to campaign ad spending, and the disconnect between Black CEOs and Obama. They also examine the need for more Facebook regulation, and what really happened with Roland Martin at TV One.

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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.