Buying a Home Becomes More Expensive as Mortgage Rates Rise

Even as real estate developers and analysts eagerly await the spring season which is traditionally the best time of the year for sellers, mortgage rates are rising, following the Fed’s cautious step backwards from its mortgage purchase program.

The government had stepped in with a ‘bail out’ of the housing market when it was teetering on the brink of total collapse during the recession. The support came in the form of purchase of mortgage based loans and several home buyer advantage programs and schemes alongside tax breaks. Following strong evidence of the resurgence of the economy, the Fed announced that it would no longer continue its purchase of mortgages, leaving the markets to find their own balance.

As the second round of the home buyer credit program draws to a close, analysts believe that demand should taper off soon following the June deadline. Although the second phase of this program has not been as successful as its first phase, which had a November deadline, there has been some activity in the market that can be attributed to the scheme.

30 year mortgage rates have risen to 5.21% – their highest level in the last 8 months. A year back, mortgage rates hovered at a much lower level – in the range of 4.8 – 4.9%. Analysts are now warning that higher rates along with fewer government incentives will subdue demand in housing soon.

On the other hand, some analysts claim that the pent up demand could find release after 3 years of slowdown in this sector, thus balancing the decline due to higher rates and lesser benefits. At present, demand does not appear to have fallen in spite of the jump in rates from 5.08% in the previous week.

Treasury yields have also been on the rise in this period and in line with the regular pattern, mortgage rates have increased. Fixed rates will continue to stay below the 6% level and there is no need for panic buying yet, according to some analysts. Higher rates will push demand down to some extent as fewer home buyers step up to make a purchase. This means there could be some decline in prices soon.

Refinancing has become a less popular option now as loans become more expensive than they were in recent months. However, the modest improvement in employment has boosted confidence in the housing market too.

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