January 4th, 2010
Mortgage Rates Over 5% for 2010
30-year mortgage rates have been pushing over the 5% mark in the new year, following mortgage rate trends that reached a record low of 4.97% in the last week of November and have been rising throughout December. While housing market analysts were enthusiastic about mortgage rates dipping below 5% since the end of October, this week’s rate rose to 5.34% for the popular 30-year fixed rate loan. Other popular mortgage loans have also increased steadily over the last weeks: the 15-year fixed rate jumped to 4.67% from last week’s 4.59% and the 5/1 ARM jumped to 4.52% from last week’s 4.42%. Is this the end of the housing market honeymoon of low federal rates and happy homebuyers?
The not-so-good news is that higher mortgage rates tend to discourage homeowners from buying new homes or refinancing. The low rates of the past few months have helped the housing market show some improvement as new home inventory moved, foreclosures slowed down, and refinancing picked up. Total existing home sales jumped 7.4% in November, which was the most since February 2007, and the number of unsold homes has been the lowest since December 2006, reports MarketWatch.
A significant increase in mortgage rates may seriously hobble a fragile housing market, which has been propped up by federal tax incentives and federally-supported low interest rates. The rise and fall of mortgage rates is influenced by the rise and fall of Treasury yields and prices of mortgage backed securities. Freddie Mac issued a warning that rising mortgage interest rates could hit 6 percent in 2010, while Morgan Stanley claimed rates could spike to as high as 8 percent, thanks to heavy government borrowing that has been driving up Treasury rates, reports The Boston Herald.
The good news is that while these mortgage rates are higher than the sub-5% interest rates of past months, these rates are still better than mortgage rates at the end of last year. Today, a $200,000 loan on a 30-year fixed mortgage rate would have a monthly payment of $1,115.58, compared to $1,153.21 for the 30-year fixed mortgage rate of 5.64% this time last year. This calculates to a savings of about $38 per payment over the lifetime of the loan—that’s nearly $500 in savings yearly.
The housing market isn’t necessarily headed for a slump. The start of higher mortgage rates maintaining pace in 2010 might be reflecting an improving economy. Also, while interest rates are climbing, they are still at historically low percentages allowing prospective homeowners to still receive a great financing package on a home. Despite the uptick in mortgage rates, there is still hope yet for the housing market in 2010.
[The holiday break delayed this blog post from the usual Friday posting, when you can regularly tune into the Friday roundup for more home market and mortgage updates.]
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
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