Interest Rate Mortgages & Housing

By Gary Webb

Everybody is talking about rising mortgage interest rates, the housing market, and the effect of higher rates on US equities. What can we expect?
Let’s begin by putting things into perspective. Yes, some rates have shot upward rather quickly. The sharper rate increases have actually been on the shorter duration notes, such as the 5-year Treasury Note, but the widely-followed 10-year note has also increased. That said, rates are still on the extremely low side from a historical perspective, especially 30-year mortgage rates!
30-year fixed-rate mortgages are still at historically low levels, even
with the recent uptick.

Since rising rates have not been a topic for a while, the recent increase has caught many people off guard. Let’s drill down to the actual movement of the 30-year fixed rate averages over the last few months.
The average rate dipped between 2.65%-2.75% during the first couple of months of 2021 and has since risen to the average rate of 3.05% at the most recent measurement. Keep in mind, these percentages are averages. Many borrowers will get higher or lower rates based on their credit profile, down payment, type of loan, and more.
No surprise here: housing inventories have remained low. According to the Realtor.com February housing report (released in March), inventories have continued to decline nationwide. National inventory declined by 48.6% year-over-year, while median listing prices increased 13.7% compared to last year.
Even with the recent uptick in interest rates, there just doesn’t seem to be a big enough supply of homes for sale. Where are the sellers?
Americans have taken advantage of the record low-interest rates at a feverish pace. According to Freddie Mac, U.S. homeowners cashed out $152.7 billion in home equity in 2020, a 42% increase from 2019 and the most since 2007. As many Americans have used proceeds to make upgrades to their homes since the pandemic began, this influx of home improvement capital has seemingly increased average home values.
The million-dollar question! While nobody knows for sure, experts have mixed predictions on the direction of rates for this year. One thing is certain: 30-year fixed mortgage rates are still very close to all-time low levels...for now.

While the Fed has not indicated any policy change, their ‘lower rates for longer’ trend seems like it will persist. It will be interesting to see how the market forces combined with Fed policy affect interest rates over the course of this year and into 2022.
Since every investor’s time horizon, risk tolerance, and investment objectives vary widely, there is no single answer. If you are considering purchasing a primary or secondary home, it could be wise to take advantage of historically low-interest rates.

If you would like to discuss your individual needs, goals, and how higher rates may affect your investment portfolio, please contact us for a custom-tailored plan.