Soaring Mortgage Rates Are Going To Make It Far More Difficult To Buy Or Sell A House
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Soaring Mortgage Rates Are Going To Make It Far More Difficult To Buy Or Sell A House

Soaring Mortgage Rates Are Going To Make It Far More Difficult To Buy Or Sell A House

By Michael Snyder, on June 27th, 2013

 

Home For SaleDid you actually think that mortgage rates were going to stay at all-time lows forever?  Federal Reserve Chairman Ben Bernanke was able to grossly distort the market for a while by buying up massive amounts of government bonds and mortgage-backed securities, but there was no way in the world that the market was going to stay that distorted forever.

It simply does not make sense to give American families 30 year mortgages at a fixed interest rate of less than four percent when the real rate of inflation is somewhere around eight to ten percent and the mortgage delinquency rate in the United States is 9.72 percent.

If we actually did have “free markets” and they were behaving rationally, mortgage rates would be far, far higher.  Well, now that the Fed has indicated that they are going to be starting to “taper” QE at some point, bond yields have skyrocketed and this is rapidly pushing up mortgage rates.  According to Freddie Mac, we just witnessed the largest weekly increase in mortgage rates in 26 years.  Sadly, this is only just the beginning.  Unless the Federal Reserve intervenes, mortgage rates are going to continue to try to revert to normal.

When mortgage rates go up, so do monthly payments.  All of a sudden, families that could afford the monthly payments on a $300,000 mortgage are no longer able to do so.  This is why when mortgage rates rise, it tends to push housing prices down.

If rates continue to go up, it is going to become increasingly difficult to sell your house.  Less people will be able to afford the monthly payments as rates rise.  Many families will have to end up reducing their selling prices.

And right now we are watching rates rise at a rate that we have not seen since the 1980s.  According to Freddie Mac, the average rate of interest on a 30 year fixed-rate mortgage jumped by more than half a percentage point just last week…

The average 30-year fixed-rate mortgage rose from 3.93 percent last week to 4.46 percent this week; the highest it has been since the week of July 28, 2011. This represents the largest weekly increase for the 30-year fixed since the week ended April 17, 1987.

A year ago, the 30 year rate was sitting at 3.66 percent.

The monthly payment on a $300,000 mortgage at that rate would be $1374.07.

Currently, the 30 year rate is sitting at 4.46 percent.

The monthly payment on a $300,000 mortgage at that rate would be $1512.93.

If the 30 year rate rises to 7 percent, the monthly payment on a $300,000 mortgage would be $1995.91.

Does 7 percent sound crazy to you?

It shouldn’t.

As the chart posted below demonstrates, a 7 percent mortgage was considered “normal” a decade ago…

30 Year Mortgage Rate

As you can see, mortgage rates have nowhere to go but up.

And as they go up, they are going to absolutely crush any semblance of a “housing recovery”.

Meanwhile, Americans continue to get poorer.

via Soaring Mortgage Rates Are Going To Make It Far More Difficult To Buy Or Sell A House.

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