Worried about rising mortgage rates? Perspective is importantby Tim Manni
Last week, the average rate for 30-year fixed-rate mortgages moved eight basis points higher (.08%), ending HSH.com’s national survey at 4.86%, its highest value since early August.
The most immediate example of borrower reaction to rising rates has been the fall off in refinance and purchase applications. Even without a one-time, dramatic increase in mortgage rates, borrowers have quickly moved to the sidelines, content to see where mortgage rates will head next:
With the increase in rates, it’s little surprise that applications for new mortgages have dropped sharply, particularly for refinancing. Given what seems to be the particularly strong interest rate sensitivity of this refinancing boomlet, refinancing activity will probably grind to a halt absent a new decline in rates.
Perspective is always important, especially when you factor in all the considerations that go into a home purchase:
Home purchases rely far less on rock bottom interest rates and far more on economic improvement and especially income and job growth. Those who wish for lower rates are, in a way, wishing economic misfortune on others. At this stage of the recovery, we should all be cheering even mildly better economic news, even if it does engender somewhat higher rates. Yes, fewer household balance sheets will be improved by refinancing, it’s true, but if that comes at the expense of more folks getting jobs, spending money and buying homes sooner rather than later, so be it.
Furthermore, perspective is also important when you examine the recent rate increases:
Sure, rates have increased as of late, but rates have been falling for about a year. Also, the 30-basis-point increase since mid-October is only “a small take-back after a near year-long decline.”