The average rate on a 30-year-fixed rate mortgage jumped 40 basis points from November 10th through the 17th, from 3.57% to 3.94%. The Mortgage Bankers Association reports that mortgage applications dropped 9.2% over the same period. Now with 10-year Treasury note yields rising from 1.85% to 2.24% over the past week, the dollar strengthening, and a rise in Federal interest rates fast approaching, there’s concern that many new homeowners will be unable to afford their monthly payments.
Affordability in Focus Over the last year, home prices have jumped significantly across the nation. Mitigating rising prices were historically low mortgage rates, which allowed many shoppers to purchase homes that would otherwise be unaffordable. An overvalued market is one that has exceeded its long-term sustainable levels in income by 10% or more. By this metric, CoreLogic found 31 markets are currently overvalued. That compares with 21 in 2002, 45 at the beginning of 2004, and 70 in January of 2006, at the beginning of the housing crisis.
Will Rates Continue to Rise? For the moment, it’s unknown whether mortgage rates will continue their rapid rise or not. What we do know is that the cost of borrowing is an essential driver of affordability and the health of the housing market. Thus far, mortgage rates are currently around the 4% level we saw at the beginning of the year.
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