What’s Happening with Mortgage Rates?
Very gradually, mortgage rates are rising back to where they were in the spring of this year. Back in June, after the Brexit vote in the UK, 30-year fixed mortgage rates dropped to 3.52%, nearly reaching the modern-day low of 3.50%. As of today, November 28th, according to Bankrate’s weekly survey of major lenders, the rate has moved up to 4.1%% (still very low by historical standards). The 15-year fixed rate stands at 3.33%.
Kevin Parker, a mortgage executive at the Navy Federal Credit Union, thinks that mortgage rates will “creep up” during the next twelve months, rather than rise dramatically. Steve Udelson, president of Real Estate Brokers Owners.com agrees: “I don’t think over the course of the next six to twelve months consumers have to worry about interest rates spiking.”
And according to a survey conducted by Bankrate of industry experts in mid-November, almost half of the respondents thought that interest rates will rise slightly over the short-term. Since the presidential election, government bond prices have declined steeply – interest and mortgage rates usually respond to declining bond prices by rising proportionately. Bond yields (interest paid) move higher as bond prices decline.
Federal Reserve Chair, Janet Yellen, citing an improving economy, recently said that the Fed is “more likely” to raise interest rates soon. But most experts believe that the increase will be very small.
With the major stock market indices (DJIA, S&P 500 and the NASDAQ) at all-time highs, and the dollar at its highest point in history against the Euro (one Euro to 1.06 U.S. dollars), what does that portend for real estate prices?
Historically, real estate markets move in tandem with the overall economy. An improving economy usually translates to greater business activity (consumer spending), due mainly to the fact that more people are gainfully employed, and hence, have more money to spend (disposable income). Some of these folks will reflect their improved financial position by entering the housing market as first time buyers. Others, with their personal economic condition improving, and their confidence rising, will likely consider purchasing a larger, more expensive home.
Therefore, with increased competition among potential buyers, it is reasonable to assume that home values will rise in the near and medium term.