Where Are Mortgage Rates Headed? What Does This Mean For Home Buyers & Sellers?

From 2012 to about May of 2013, interest rates for a 30 year fixed rate mortgage went down with a few small upward bumps along the way.  In the last two months there has been a dramatic rise.

According to Steve Harney of Keeping Current Matters, interest rates typically go up and down within a .5 point band.  Looking at 2012 to what we are seeing currently, the rate stayed within the 3.25 to 3.75 band, moving up and down within the band for several months, then shot up to the 3.75 to 4.25 band and on up into the 4.25 to 4.75 band.  It is very important to note a jump of bands brought interest rates up for one full percent in a short period of time.

Reproduced with the permission of Mortgage-X.com

Reproduced with the permission of Mortgage-X.com

This is what economists are projecting the rate to be by third quarter of 2014:  Fannie Mae predicts 5%, National Association of Realtors predicts 4.8%, and Freddie Mac predicts 5.1%.  Here is a quote from Doug Duncan, Chief Economist for Fannie Mae “I don’t think the Fed ultimately would be troubled with a 6.5% mortgage rate.”

Frank Nothaft, Freddie Mac VP and Chief Economist made a similar statement in recent weeks “As the economy continues to improve, we expect to see continued upward movement in long-term interest rates…  At today’s house prices and income levels, mortgage rates would have to be nearly 7 percent before the U.S. Median priced home would be unaffordable to a family making the median income in most parts of the country.”

While this information does not guarantee where rates will be, it does demonstrate a comfort level by the government to allow them to continue to rise.

What does this mean to today’s buyer and seller?  If you are approved for a $1,000 per month mortgage payment, you are able to purchase a $200,000 home at 4.5% for $1013 a month.  If rates go up to 5.5%, you will be able to purchase a $180,000 with a $1,022 per month mortgage.   Purchasing power goes down for the buyer as rates go up and the pool of buyers for your home gets smaller and smaller as rates go up.

Interested in discussing your options?  Call James Wehner at 480-323-5462

Source:  Federal Reserve, Inman News, Freddie Mac, Keeping Current Matters

About the author

As a successful real estate investor and Realtor®, James Wehner’s focus is to assist buyers (investors, first time home-buyers, second home-buyers, relocation…etc) and help them find the best deal that matches their real estate needs.

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