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Report: Rising Rates No Threat to Recovery

The recent rise in mortgage rates is not enough to pose any real threat to the housing recovery, but that's not to say the increase doesn't come with any risk, according to a recent analysis from ""Capital Economics"":http://www.capitaleconomics.com/.

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Freddie Mac's most recent ""survey"":http://www.dsnews.com/articles/freddie-mac-30-year-fixed-rate-nears-4-2013-06-13 showed the 30-year fixed rate is almost back at 4 percent, while the Mortgage Banker Association ""reported"":http://www.mbaa.org/NewsandMedia/PressCenter/84772.htm the 30-year was up to 4.15 percent, the highest since March 2012.

To put things into perspective, Ed Stansfield, chief property economist at Capital Economics, noted that on a long-term view, rates are still ""exceptionally low"" as they return to levels seen in late 2011 and early 2012.

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Also, borrowing costs are also still at affordable levels and the employment situation is showing signs of improvement. Capital Economics estimates a mortgage on a median priced home would require less than 15 percent of median income compared to the long-run average of 22 percent.

However, 18 months ago, when mortgage rates hovered around the levels seen today, ""house prices were at best flat, if not still edging lower, while the recovery in housing sales was very much in its infancy,"" Capital Economics stated.

Potentially, the firm says a rise in mortgage rates could discourage home sales, hamper builder confidence, which will slow starts, and trigger more delinquencies for struggling homeowners with adjustable-rate mortgages.

Though, so far it appears rising rates have had the biggest impact on refinancing applications, according to the analytics firm's observations,

Refinancing applications recently rose ""5 percent"":https://themreport.com/articles/mortgage-application-volume-reverses-downward-trend-2013-06-12, but Capital Economics stated, ""the scale of previous falls meant that refinancing applications were still over a third lower than in the first week of May.""

At this point, the firm determined it's still early, adding changes in mortgage rates can take six months before impacting demand.

About Author: Esther Cho

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