It’s hard to have missed the recent news: After a long, steady decline, mortgage interest rates have started ticking higher over the past couple of months.
For the first time in nearly two years, 30-year fixed-rate mortgages have moved above four percent. And while no one knows for sure what the future holds, many economists and housing industry experts believe that interest rates could be heading higher from here.
The rise in interest rates accelerated in recent weeks in response to comments by Federal Reserve Chairman Ben Bernanke that the Fed may begin tapering its aggressive bond-buying program later this year. That program has been largely credited with keeping long-term interest rates near all-time lows.
Since 10-year Treasury bonds bottomed at 1.4 percent last summer, rates have risen more than 60 percent to 2.4 percent in June.
The average 30-year fixed-rate conforming mortgage, meanwhile, has climbed to 4.17 percent, the highest rate since March 2012 and the sixth straight weekly increase, according to the Mortgage Bankers Association.
What does all this mean for potential homebuyers, sellers and the housing market?
The good news for buyers is that although interest rates have edged higher, those rates remain low by historical standards – at least for now, according to the Wall Street Journal in its article “Mortgage Rates Rise but Still a Bargain.”
But those buyers who have been sitting on the sidelines might want to make their move sooner rather than later.
“There is no doubt that rates are going up; the only real question is how much they will increase over the coming year,” said Robert Reid, president of Princeton Capital, a Coldwell Banker mortgage partner.
“The Fed stimulated the economy by artificially holding rates down over the past couple of years,” Reid said. “They recently announced plans to unwind the program over the next year, so it only stands to reason that rates will go up. Just the mention of the Fed’s intention has raised rates.”
Reid said that industry experts generally believe that 30-year fixed-rate mortgages could climb to the high four percent range to the mid five percent level by 2014 given how quickly they have already risen.
Higher mortgage rates can sharply increase the cost of buying a home. On a $300,000 mortgage, for example, every percentage point increase in rates translates into $179 more in monthly payments on a 30-year loan.
While that may not sound overwhelming to some, it could make the different in qualifying for a loan or not. And over the life of the mortgage, it adds a whopping $64,000 to the cost.
The recent bump in mortgage rates could also serve as a wake-up call for potential sellers who have been hesitating about putting their home on the market.
Low interest rates have helped fuel strong buyer demand for housing,
but far too many sellers have remained on the sidelines during this rally. The result has been extremely low inventory levels in many cities, in some cases as much as 50 percent below where it stood just a year or two ago.
However, with the prospect of interest rates moving higher – and with that, the cost of buying a home – homeowners may want to think about selling now while demand remains strong and it’s still a seller’s market in most areas. That’s especially true for those looking to move up to another home after they sell.
So if you have been thinking about buying a selling a home but have held off, now may be the time to make your move. Despite the recent increase, interest rates are still near historic lows. But as we’ve seen in the past few weeks, that could change very quickly!