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Rising Mortgage Rates: What’s Next?

January 10, 2011 by MSI

Rates on a 30-year fixed mortgage fell to a 40-year low of 4.17 percent in November, but analysts predicted that rates would begin to rise as we entered 2011 and, over the past several weeks, that has become a reality mortgage rates rising two-thirds of a percentage point. From one perspective two-thirds of a percentage point doesn’t seem like much, especially when rates over the past 40 years have averaged 9 percent and reached highs of over 17 percent in the early 1980s. After all, we are still under five percent, which makes borrowing very affordable. What’s interesting is that the difference of two-thirds of a percentage point can make a big difference for some buyers, even potentially pricing them out of their desired price point for a new home. The two-thirds of a percentage point on the rate can lead to a nearly eight percent increase in a monthly payment, causing some buyers to pause. Will rising rates impact the housing market negatively? And, what is in store for 2011?

While rising rates may impact some buyers, those serious about purchasing will still do so. Five percent is still very close to the historical low in the United States and it’s unlikely that rates will decrease again in the foreseeable future. The housing market, while tied to mortgage rates, is more heavily impacted by the general economic conditions and unemployment so only time will tell regarding recovery and consistent improvement.

If you are in the market for a new home and in the position to buy in terms of both employment and credit history, now is the time. Rates will continue to remain low, but they will increase so take advantage of today’s lending rates and don’t wait any longer.