Last week, mortgage rates rose about another 1/4%, with the 30 year fixed rate conforming loan with no points being quoted in the 5.75% to 6% range. That's up about 3/4% to 1% from the rate bottom we saw just two months ago. Mortgage interest rates closely follow U.S. Treasury bond yields, and they've been rising sharply over the past month as well.
The question, of course, is what impact the sharp uptick in mortgage rates will have on real estate sales. Every rise in mortgage rates reduces affordability, and at the margin pushes some people out of the market and forces others to downshift to lower priced properties. My experience is primarily with second home buyers, and they tend not to be at the affordability margin. Moderate rate increases don't seem to have that much of an impact — as long as they stay within a range that's perceived as "historically low" (a phrase Realtors love to use.) That "historically low" perception seems to apply up to about 6.25%. In the past 5 years, there have been 3 spikes into the 6.5% range, but they've been short lived and tend to settle back around 6%.
But if rates continue to climb, pushing well into the 6's and close in on 7%, that perception may change.
Inversely, it may motivate persons window shopping to pull the trigger on a purchase, since the fear that 'rates will only go lower', thus creating a deflationary conundrum, seem to be overblown.
We have seen the bottom, and it is us.
Posted by: Rod | June 16, 2009 at 11:05 AM