Interest rates for mortgages have risen roughly 0.25% since early September, but how much more can they increase?
Mortgage rates have slowly risen over the last three months — albeit with some weekly declines from time to time. But if the mortgage market continues on this trajectory, it’s not clear that Americans will be willing to stomach higher interest rates for home loans.
“With Federal Reserve policy on cruise control and the economy continuing to grow at a steady pace, mortgage rates have stabilized as the market searches for direction,” Sam Khater, Freddie Mac’s chief economist, said in the report. “The risk of an economic downturn has receded and, combined with the very strong job market, it should lead to a slightly higher rate environment.”
While mortgage rates have not eclipsed the 5% threshold since 2011, historically they’ve been much higher than that. In the 1990s, interest rates on home loans hovered between 7% and 9% — and in the 1980s, rates at one point exceeded 18%. “One reason we’ve been able to sustain a high level of home prices in many high-cost markets is because mortgage rates have been cheap,” said Frank Nothaft, chief economist at CoreLogic CLGX, +0.85% .
‘If mortgage rates go from 3.5% to 5% or higher, given where prices are right now, markets that are already borderline unaffordable become much more so.’ — Frank Nothaft, chief economist at CoreLogic The state of the economy is another factor. Overseas, central banks have slashed rates to zero in the face of economic weakness in recent years.
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