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Fears surrounding rising interest rates

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Posted: Thursday, September 5, 2013 11:22 am

Don’t fear rising mortgage rates just yet. The interest rate for a 30-year, fixed-rate mortgage is expected to hover around 4% during the second half of 2013 according to Freddie Mac in its latest U.S. Economic and Housing Market Outlook.

But don’t expect rising interest rates to stall the nation’s housing recovery any time soon. In most housing markets housing remains affordable and it would take a much steeper interest rate hike for potential homeowners to feel the economic pinch of rising rates. I fact, Freddie Mac researchers says at today’s home price and income levels, mortgage rates would have to rise closer to 7% before families with median incomes would find themselves unable to afford a median-priced home. That’s some good information to hang on to and keep in mind as interest rates rise.

Still, Frank Nothaft, vice president and chief economist with Freddie Mac, calls today’s fears about rising rates unwarranted in many respects. “The recent upturn in interest rates is sparking fears among some that the nascent economic and housing recoveries will be choked off before they produce sustained growth,” said Nothaft. But, he added, “Nothing in the recent trends suggests that we need to fear a major slowdown. A gradual rise in interest rates will not derail the recovery, and are an indication that the overall economic situation is improving.”

Many aspects of the housing market support this outlook. Today, an asset worth 19% more is available for 61.5% less than in 1981! When you consider the lack of new construction over the past several years add to that the high demand, low inventory, and low prices it appears that the housing market continues to be sitting pretty.

Sheri Aguilar is the president of the Lodi Association of Realtors and can be reached at Sheri@YourLocalAOR.com.

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