Will Rising Rates Put the Kibosh on the Housing Boom?

Jacqui Kenyon
Posted

98118955We reported last week on how rising mortgage rates could harm our economic progress. On Thursday, these rates soared to a new peak.

According to CNN Money, rates on fixed-rate 30-year mortgages increased 0.53 percentage points and hit an average 4.46%—the largest jump in a single week in the past 26 years.

This sharp increase is likely a response to the uncertainty surrounding the future of quantitative easing. QE is an economic stimulus program wherein the Federal Reserve purchases assets, such as government bonds, from banks to increase the money supply. Fed Chairman Ben Bernanke spooked markets after commenting that the stimulus program will slow this year, coming to a conclusion next year.

Rates for 15-year fixed-rate loans—popular among the refinancing set—made a similar, if less dramatic, jump this week: Up 0.46 percentage points to 3.5%.

What It Means for the Economy, and for Homeowners

If mortgage rates continue to increase at a similar clip, it could spell disaster for housing market recovery around the country. Mark Zandi, chief economist at Moody’s Analytics, told CNN Money, “If sustained, the rate increase will take some of the steam out of the housing market.”

Just what effect are these increases having on homeowners in the here and now? To put these numbers in perspective, each additional percentage point increases homeowners’ monthly payments by $56 per every $100,000 they borrowed.

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