Rapidly Rising Mortgage Rates Deter New Home Purchases

According to recent industry reports, mortgage rates are rapidly rising and this is having a serious effect on the housing market. Mortgage applications are falling off rapidly as the mortgage rates hit a four year high point. Home sales are down, with potential buyers backing off from what many see as a overfed housing boom. This is a very different picture than what the country has been seeing lately, with the latest housing boom looking like nothing was going to slow it down.

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The housing boom has been keeping the economy alive over the past five years. With business investments down due to uncertainty in the national and international political arena, the only thing keeping the U.S economy healthy has been housing and manufacturing. The numbers are concerning, with average interest rates on 30 and 15 year fixed rate mortgages climbing to the highest that they have been in four years. The mortgage finance company Freddie Mac reports that the interest rates on 30 year mortgages has peaked to 6.67%, rising up from 6.62% in the week before. The last time interest rates were this high for 30 year fixed rate mortgages was in the middle of June, four years ago in 2002. Rates for 15 year fixed rate mortgages are also high, jumping up to 6.26% from the previous 6.23% in a week.

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 Fixed rate mortgages aren’t the only ones to experience the hike in rates, adjustable rate mortgages are also climbing. Single year adjustable rate mortgage rates rose from 5.61% to 5.68% in a single week. Although adjustable rate mortgages rates are high, they are currently getting more popular as home buyers look to find ways to buck the inflated interest rates.

The reason for the rapidly climbing rates is primarily the recent boom in the housing market. There are other reasons as well, rates jumped because of concerns that the Fed Reserve is planning to raise interest rates later this month. The Federal Open Market Committee is distressed about the current inflation rates, and the minutes from their last meeting indicate that the reserve is likely to raise rates in the very near future to ease the impact of skyrocketing inflation. The rise in mortgage rates is an attempt by lenders to preempt the rise in federal rates and not be caught out.

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The overall effect of these rapidly rising mortgage rates is a cooling of the housing market. As federal rates are likely to rise, the trend of rising rates and a drop in housing sales looks very likely to continue.

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