Record-Low Mortgage Rates Now on the Rise
We’ve had a good run with these historically low mortgage rates, haven’t we? They’ve spurred post-bubble growth in the housing market, encouraged many homeowners to refinance, and made the dream of homeownership more affordable for rank-and-file buyers.
But as with all good things, these mortgage rates had to come to an end sometime. We all knew it was coming, but it won’t be as bad as we might have thought.
The Federal Reserve Has Taken Action
As a mortgage professional, you probably keep pretty close tabs on the goings-on in your industry, so you’re already aware that the Federal Reserve has been eyeing a rate hike for some time.
Back when the housing bubble burst, the Fed pulled out all the stops to revive the flagging economy, and that included taking action to drop the federal funds rate to zero.
The federal funds rate is the rate at which financial institutions lend each other money, and it affects everything from car loans to personal loans to… you guessed it, mortgage rates.
Historical Rates to Rise Gradually
Since 2006, the Federal Reserve’s Open Market Committee has elected to keep the Federal Funds Rate as low as possible, and that’s why our mortgage rates have been so enticing. However, the committee recently decided to raise short-term interest rates, and mortgage rates have been gradually ticking upward.
This time last year, a fixed-rate, 30-year mortgage averaged 3.8% interest. As of this writing, the rate has crested 4%. The 15-year FRM has seen similar gains, edging up several one-hundredths of a percent, and gaining more than a tenth of a percentage point YOY.
Are New Rates Bad News for Mortgage Professionals?
Is this bad news for mortgage professionals? Well, that depends on whom you ask. Yes, mortgage rates are going up. And yes, that probably means slightly fewer refinance clients entering the market overall.
However, it also means the Federal Reserve has decided that the economy is ready for these rate hikes, and a strong economy generally goes hand-in-hand with a healthy housing market.
Mortgage Rates Are Still Ridiculously Low
And while a few points on an interest rate can add up to an appreciably higher long-term cost, these interest rates are still historically low. Sure – they’re higher than they were six months ago, but let’s get some perspective: homebuyers in the early 1980s (when interest rates were sky-high) would have gladly killed for these rates.
According to the Fed, the monetary tightening slated to take place over the next year will be gradual. Activity in the housing market is projected to remain brisk, which means plenty of eager mortgage leads for you and your mortgage business.
Even though rates are expected to rise gradually, it wouldn’t hurt to remind your clients that mortgage rates are not going to get lower any time soon. The Federal Reserve has charted the course, and it leads to higher interest rates. For clients sitting on the fence about getting a new mortgage or refinancing an existing one, it may be a long time before rates are this affordable again.
[Photo via: AmericanMortgageLender]
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