In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage rates and affordability.
- The average rate on 30-year mortgage looks to hit 4.7 percent very soon.
- The 10-year Treasury has inched higher this week ahead of tomorrow’s release of minutes from the most recent meeting of the Federal Reserve Governors. Light August trading volume and a dearth of economic data this week have added to the uncertainty.
- Traders of Treasuries and mortgage backed securities are concerned about the timing of the Fed’s imminent winding down of its program to purchase these securities. Most bets are for September, while a few are for the beginning of 2014.
- The end of the Fed’s program would result in higher rates for home buyers. But how will it impact home purchases? The answer is it depends.
- The US has experienced periods of rising rates before without a decline in home sales volumes both in mid and late 1970s as well as in 1994 and 1999 through 2000. However, as rates spiked above 10% in the early 1980s, home sales fell to their lowest levels in nearly a decade. The good news is that rates are not likely to rise to 17%.
- Rising mortgage rates combined with higher home prices will erode affordability, which is at record lows. However, affordability is still strong and will remain so with modestly higher rates or prices and there are many homebuyers who have not been able to participate in the market in recent years due to tight lending conditions. Income growth does need to improve over the long-term though.