Interest rates for a 30-Year Fixed-Rate Mortgage (FRM) have increased sharply this year, sitting at 4.86% for October*.
All data provided courtesy of Freddie Mac.
October’s monthly data hasn’t been reported yet; 4.86% represents the weekly number for the week of 10/25/18.
Argument 1: Don’t Panic
30-Year FRM Rates are below 5%, which is still historically low. Rates didn’t cross below the 5% barrier until Summer 2010, which means rates were higher than they are today for the first 10 years of this chart (and the 30+ years before that!)
The only people who should/could complain about a 5% mortgage are the people who thought about buying a house when rates were between 3.5% - 4.25% for most of the last 2-3 years. (Oops - should have pulled the trigger.) Outside of these folks, most people won’t complain about a mortgage rate which hasn’t been available for a few generations.
Argument 2: Holy crap - Rates are going up!
Forget the long-term history (because I’m not buying a house in 1992!); rates today are a full point higher than they were at this time last year. That means, on a $300,000 house with 20% down, today’s payment is $141 higher. (4.86% vs 3.86%). So I’ll either need to spend more money every month for the same house, or I’ll need to buy a house that’s only $266,000 instead. Ouch.
To make matters worse, the Fed is likely to raise rates further - we could be looking at 5.5% or even 6% by this time next year. And you can’t tell me that won’t have a dampening effect on the real estate market - or even on the economy as a whole.
Both arguments are correct. Rates are historically low, but people’s budgets are based on the recent past - not the past from a long time ago. Higher rates will likely have a short-term negative impact on the market, until the market gets used to the new higher rates.
As long as rates don’t go up indefinitely (see 1978 - 1981), the market should stabilize.
- Chris Butterworth
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