Low Mortgage Rates Power Rising Home Prices

mortgage rates tank

Mortgage rates never move in a straight line. Whether moving up or down you can’t get excited about little blips here and there, a lesson we are seeing played out in 2016.

According to Freddie Mac the rate for 30-year, prime mortgages stood at 3.97 percent as of January 7th. By March 10th the rate had fallen to 3.68 percent.

It’s hard to look at these numbers and understand the contrived worries that real estate loan rates are rising. Yes, it’s true the rates seen on March 10th are higher than in February but they aren’t high enough for anyone to worry. The rates seen in February reached a low of 3.62 percent at the end of the month. You don’t need an MBA to see that the difference between the two rates is nothing more than .06 percent.

Let’s imagine that you borrowed $150,000 at 3.62 percent. This is a fixed rate, 30-year mortgage. The monthly cost for principal and interest is $683.65. If the rate soars to a mighty 3.68 percent the monthly cost will rise to a calm and unthreatening $688.73. That’s a difference of $5.08 per month.

The reality is that the mortgage rates we are seeing today are remarkably close to the historic lows which we saw in 2012. That year, according to Freddie Mac, the lowest weekly rate was just 3.31 percent.

Lowest Mortgage Rates In 65 Years

At the end of 2012, Frank Nothaft, Freddie Mac’s chief economist, said mortgage costs that year represented the lowest annual average in 65 years.

The Mortgage Bankers Association, which has a different set of measures, reported last week that the conforming loan rate had reached 3.89 percent while FHA financing was priced at 3.71 percent Again, these are remarkably low rates by historic standards.

What makes these numbers interesting is that there is no surer way to pump up real estate demand than with bottom-dwelling mortgage rates. The National Association of Realtors says existing home prices in January reached $213,800, up 8.2 percent from a year earlier.

NAR also says prices have now shown consecutive year-over-year gains for 47 months. That’s a remarkable number, one which will have to end at some point, but the important idea is this: can anyone conceive of a situation where home prices would rise so consistently if we had mortgage rates at 5 percent, 6 percent, or 7 percent?

The next time you hear somebody moan about “rising” mortgage rates you might want to remind them that mortgage rates today are remarkably low. These low rates are the key to rising home prices, prices which on average have risen consistently for almost four years straight.

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