Rates on the rise!
Over the past few weeks, mortgage rates have hit their highest levels since 2011. So is the era of low mortgage rates over? Most likely, but the rates are still extremely low by historical standards. The increase in rates this year reflects a departure from a long period of declining rates that began during the financial crisis and bottomed out in late 2012.
The main reasons for the abrupt rise this year is a combination of a surging economy, wage increases and a steep rise in commodities such as gasoline which can stoke inflation worries. A major concern for the economy is that these higher interest rates will begin to stop home owners from looking to trade up into large homes and thus stall some of the robust real estate market.
According to the National Association of Realtors, a 1% increase in mortgage rates can lead to a 7-8% reduction in home sales. That would be a huge economy bomb! This statistic can become even more acute due to the fact that people cannot simply opt for a less expensive home given the lack of inventory available in the market, especially at the more affordable tiers.