By Mike Bodeen · 12 February 2018
Or is this Another “Cry Wolf”
For so many years, that I’ve lost track, we’ve expected mortgage rates to climb up from the depths of the mid 3% range to the low 4’s. We’ve been encouraging folks to get off the fence and get into the homeownership. Many did. They’ve been rewarded with steady appreciation and if they took out a 30 year fixed rate mortgage, they wisely (or unknowingly) bought into the best anti-inflation protection on the planet.
Well, another buy cry is going out! Only time will tell if it’s the wolf at the door again. We suspect that this time, further increases are the real deal. Mortgage rates have now increased for 5 consecutive weeks, according to Bankrate data, bringing interest on a 30-year fixed rate loan to 4.44 percent, while home prices continue to rise due to a lack of available homes.
The Fed’s chart shows a current 4.32% 30 year fixed rate as of February 8th (see below). The last time rates were this high was April 2014, almost 4 years ago. Rates last went over 5% in June 2009 and over 6% in November 2008.
A few reasons for our confidence, are that Inflation and wage growth are back on the rise and the Federal Reserve’s plan to raise short-term interest rates multiple times for a consecutive year has reduced the value of government debt. According to Bankrate, the yield on 10-year Treasuries is close to a four-year high. (Bond prices and yields are inversely related.)
If the Phoenix Metro area is any micro observation of our country’s improving economy, then upward growth will continue nationally. World events are also conspiring to make it more expensive for you to borrow money to buy a house. Oh, and if this were not enough, China may reduce its appetite for U.S. bonds.
Our metro area real estate market still has one problem for buyers – not enough inventory in the sub $500,000 range. This alone may continue to escalate prices. Couple this with higher rates, and now the affordability problem also escalates.