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Interest Rates Just Surprised Everyone, but Relax

November 30, 2016

Mortgage rates are on their way up.

Before diving into the details, it should be known that this recent rate spike is far from unprecedented. According to Freddie Mac, the average 30 year fixed mortgage rate between 1975 and 2015 was 8.49%. When only counting years 2001-2015, the average 30 year fixed rate was still 5.31%. According to CNBC, the average 30 year fixed rate as of November 30th 2016 was 4.23%

But mortgage rates are still on their way up, and they will change the lending environment a bit.

The half a percentage point increase has added hundreds, or even thousands of dollars, to some homeowners’ mortgage payments, according to The New York Times. The quick increase surprised industry experts, and it is expected to have implications for the housing market in 2017 if current trends continue, the source noted. The Mortgage Bankers Association expects refinancing to drop 46 percent in 2017, and experts also predict it will stunt consumer-loan growth, The Wall Street Journal reported.

“Anybody who was floating or didn’t lock in a rate is screaming at their lender: ‘How could you do this to me?'” Guy D. Cecala, chief executive and publisher of Inside Mortgage Finance told The New York Times.

The spike in interest rates led nervous borrowers to apply for mortgages en masse. According to data from the Mortgage Bankers Association, the number of mortgage applications rose 13 percent the week that ended Nov. 18 from the week before, The Wall Street Journal reported.

Many experts are also expecting the Federal Reserve to raise interest rates when the board meets in December, The New York Times reported. Some expect this to affect the decision of some prospective homebuyers to purchase a home, the source noted. But overall, the increase in mortgage rates shouldn’t affect the mortgage industry too adversely.

“Most consumers don’t make decisions based on a change in mortgage rates,” Svenja Gudell, chief economist at Zillow, told The New York Times. “We’re dealing with such a tight inventory, I think they’re more focused on finding a home that they can afford.”

 

*content is from Brafton INC, 2016

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