What Impact Will the Rise in Interest Rates Have in Our Local Market?

Fixed Mortgage Rates escalated for the fourth week in a row, reaching their highest rates in a year, Freddie Mac has reported. Before going any further, let’s all remember that we are still at historically low rates. The average 30-year, fixed-rate mortgage is still hovering right around 4%, which is certainly a great rate for home buyers. One reason for the increase is improving economic data.  The Conference Board (which provides information on consumer confidence, leading economic indicators, and the Consumer Confidence Index) reported that confidence among consumers rose in May to its highest level since February, 2008.

John Hendley with Guaranty Mortgage has seen about a .5% increase mostly fueled by the fear that the Federal Reserve may adjust their strategy of buying mortgage-backed securities.  

One possible impact is increasing the sense of urgency in buyers. Many consumers have gotten used to interest rates only going down and have been given a dose of reality with the recent increase. This may cause them to move quickly and get under contract before rates go up again. 

We’ve talked before about the Housing Affordability Index. The Index is based on the relationship between median home price, median family income, and average mortgage interest rate. The higher the index, the greater the household purchasing power. With the median home price increasing and the average mortgage interest rate increasing, the household purchasing power is decreasing. 
In a nutshell, consumers qualify for lower priced homes now than just a few months ago. Historically speaking, affordability is still near an all-time high.   However if home prices and interest rates continue to increase, we will see fewer qualified buyers in the market which in turn may slow down our recovery.

Please let me know if you have any questions.

Tim Hopkins

www.tkosales.com

678-341-7403