Mortgage interest rates on a 30-year fixed mortgage just hit its highest level in seven years…4.875% for the most credit worthy borrowers and 5% for average, every day borrowers, according to Mortgage News Daily. A 5% interest rate is considered to be stratospheric after experiencing years of historically low interest rate levels.
Mortgage rates loosely follow the yield on 10-year Treasury notes. This Treasury market has been rumbling around with fits and starts since the beginning of January but now the Treasury is rising to reflect positive data on retail sales.
How mortgage rates standing at 5% for average borrowers may affect the housing market is anyone’s guess at this point however, most experts warn that such an interest rate level is not good news. The supply of affordable homes is at an all-time low in most markets. There is only a 3.6-month supply of homes under the best circumstances…a 6-month home supply is considered “normal.” And, according to the CoreLogic S&P Case Shiller Home Index, home prices are rising at the fastest pace in 4 years.
When asked about this rise in mortgage interest rates, Sam Khater, chief economist with Freddie Mac, said, “Homebuyer demand has remained positive and has shaken off the higher rate environment so far this year. However, after years of very low mortgage rates, the symbolic risk of a 5% mortgage rate, on top of higher gas prices, may cause a slowdown in homebuyer demand, particularly in western states and exurbs that are affected more by gas prices than the typical consumer.”
High mortgage rates can often squelch home prices as most buyers have to adapt and adjust to prices they can afford. And with this month being the 73rd consecutive month of home prices increasing, sellers may have to do some adjusting and adapting both their expectations and prices they anticipate getting for their homes on the market.