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Rising Rates and Housing

tariffThe latest Freddie Mac Primary Mortgage Market Survey released on Thursday pointed to all signs of mortgage rates touching the 5 percent mark as early as next week. With the Federal Reserve set to increase interest rates again this year, mortgage rates are expected to be impacted.

A recent Reuters report pointed out that, U.S. borrowing costs have risen with the rise in the Fed’s benchmark rates from near zero three years ago to between 2 and 2.25 percent recently. This rise has meant that an average homebuyer now has to pay approximately $35,000 more on a 30-year fixed-rate interest loan of $220,000.

This also means that more homeowners are looking to renovate and upgrade their home rather than trading up. In fact, according to Tony Ebers, COO, Mr. Cooper, a home has become the most valuable asset that owners can leverage in this environment.

“Rising interest rates affect not only the mortgage environment but credit card interest as well. In order to escape the cycle of credit card debt and mitigate rising credit card interest rates, homeowners may be able to leverage their most valuable asset - the home,” Ebers told MReport.

A recent survey conducted by Mr. Cooper found that 44 percent of respondents have $100,000 in home equity, which according to Ebers, can be capitalized by homeowners to help them save money and manage debt along with borrowing responsibly.

According to Rocky Stubbs, SVP, Direct Lending, Flagstar Bank, rising rates have not only limited refinance activity for mortgage lenders but are now starting to affect home affordability for would-be buyers too. “We’re entering the most challenging part of the cycle,” he said. “Some first-time homebuyers may no longer qualify. And existing homeowners looking to upgrade but have locked into low rates now have the incentive to stay put and remodel rather than trade up.”

However, he pointed out that though these factors were likely to put pressure on price appreciation and home sales in 2019, the rates remained extremely low by historical standards. “While these changes may cool the market, they will not crush the market,” Stubbs said.

About Author: Radhika Ojha

Radhika Ojha, Online Editor at the Five Star Institute, is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Dallas, Texas. You can contact her at Radhika.Ojha@theMReport.com.
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