It is recent worry for many buyers and prospective buyers. They don’t know what the rates will be in a month or may be next year. We have enjoyed historic low rates of 3 – 3.5% for 30 year fixed for almost 2 years or so. That luxury is no longer available for many future buyers.

The 30-year fixed-rate mortgage took a large jump in the week of Jun 28, rising from 3.93 percent last week to 4.46 percent this week — its largest weekly rise since 1987, Freddie Mac reports in its weekly mortgage market survey. It was the highest the 30-year fixed-rate mortgage has averaged since July 28, 2011. A year ago at this time, 30-year rates averaged 3.66 percent. It’s 4.51 percent with an average 0.8 point for the week ending July 11, 2013, up from last week when it averaged 4.29 percent. Last year at this time, the 30-year FRM averaged 3.56 percent. See the graph below:



What’s the reason?
Fixed-rate mortgages soared with bond yields amid the Fed’s recent remarks on June 19 that it might soon reduce its bond purchase program, which has helped to keep mortgage rates at historical lows. The Fed plans to moderate its purchases of bonds later this year and end purchases altogether by the middle of 2014.

Mortgage rates moved higher again this week as speculation continued about whether the Federal Reserve will end its future bond purchases, which have kept rates at historical lows. But remarks by Federal Reserve Chairman Ben Bernanke on Wednesday(Jul 10,2013) may indicate that the Fed won’t be ending its program immediately. On Wednesday, Bernanke said that unemployment is still high and inflation too low. He said the Fed would not raise short-term rates until the unemployment rate reaches 6.5 percent. The jobless rate is currently 7.6 percent. The Fed has been buying $86 billion a month in government bonds to hold down long-term interest rates, which have helped mortgage rates in recent months reach all-time lows.

What’s the Impact?
The major impact is for the buyers whose affordability level has gone down a bit and they have to pay little bit more in mortgage payment for the same house compared to a month ago. It might not have a big impact on the credit approval but some buyers might not be able to afford bigger house for the same price compared to a month or year ago. Rates are still historic low and demand in many metros are still in historic high. This rate increase might help the soaring home prices to settle down a bit. Builders might wait or atleast think twice before rising the price due to expected slow housing demand because of the interest rate increase. See the graph below:



Many buyers were waiting in sidelines hoping the ever increasing home prices to settle down or at least reach a saturation point before the interest increase. But it seems things are happening in other way around. So it is a big blow to those buyers interests and they might think they have lost the boat and now its too late. I would say that the rates are still decent compared to 6-7% during the years 2003-2007 and 8-10% during 1980’s. They should take those high rate dog days into consideration and make decision accordingly and try to make use of this opportunity to buy decent place to live by getting a dream house. There are still lot of deals around and don’t lose hope as the rates will come back down before the end of year and you should be able to take advantage of it.

About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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