Signs that the U.S. economy is improving are causing mortgage interest rates to rise. These climbing rates are igniting both buyers and sellers to take action.
Over the past few years, mortgage rates decreased significantly. Lowering mortgage rates was intended to spur everyone, from investors to consumers, to borrow and spend. The strategy encouraged many homeowners to refinance existing home loans, but economists were disappointed to see that it did not stimulate many home purchases. In 2012, 71% of all mortgage activity were refinances.
More recently, mortgage rates have started to climb in reaction to an uptick in business borrowing, job growth and consumer confidence. The 30-year fixed-rate mortgage, the most popular choice for home buyers, hit the highest level in early March that it has seen in the past six months. According to Freddy Mac, the 30-year fixed rate rose to an average of 3.63%, compared to 3.52% in February 2013 and 3.92% in March 2012. Economists anticipate these rates could climb higher this year.
Higher interest rates make it more expensive to buy a home. Most economists believe that mortgage rates are headed back to historical norms, which are well above 5%. For first-time buyers, dollars will go further at today's rates than tomorrow's rates. For buyers interested in moving up, rising rates may mean that now is the time to act. The price of a move-up home will increase faster than the price of their current home, and that, coupled with a higher mortgage rate, could put some homes out of reach tomorrow which are within reach today.
Rising mortgage rates are an incentive for individuals and families who have been considering a move to act, and to do so sooner rather than later. And, as prices rise, more sellers may jump into the market. Together, these active buyers and sellers may secure the housing recovery.
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CNNMoney, Why higher mortgage rates will help the housing market