30YR Fixed Hits 6.74% - Up 0.21% in Week
A: This is the lagging effect of the mortgage markets following the trend of the bond markets; and more specifically the 10YR T-note yield. Unless you have been living under a rock the past week or so, rates have been surging due to renewed inflation concerns and globally rising interest rates. Global economies are very strong and rates are rising to slow things down and ease inflation pressures. Although we are off the highs in the 10YR yield, the short lagging effect to the mortgage markets is only now beginning to be felt. Buyers will realize at a lag that home loans are getting more expensive to take out and will affect affordability and purchasing power.
According to CNN Money:
30-year fixed-rate mortgages spiked to 6.74% this week, up from 6.53% last week, according to Freddie MacI know what some people are saying, "But Noah, rates are still historically low? 6.75% won't cripple the market!"
My response is, "YES, rates are still historically low which tells me there is plenty of upside to this current trend! And I don't need to tell you guys that rates are signficantly higher than what many of us have gotten used to over the past few years. So, to say there will be NO effect on purchasing power due to the surge in lending rates is putting a blindfold on your eyes to block out what is really going on".
So what is going on? In a nutshell:
For now, if you weren't prepared for this rise in rates then let it be a good lesson to be learned that some of the stuff I talk about on this site, is discussed for reason! Being a savvy real estate investor goes way beyond knowing what location to buy in, or what property features to look for. A general understanding of macro-economic trends will take you to the next level of becoming a savvier real estate investor; unless you believe nothing affects real estate cycles in which case all of this is irrelevant. Personally, I don't think that way and have an urge to understand what effects these cycles and what risks or rewards may loom on the horizon.
Like I have mentioned in previous posts, you MUST adapt to this changing world of higher borrowing costs especially if the trend holds or continues higher. Reasses your personal financial situation with the new rate quotes for todays world and see how that increases your monthly payments. Knowledge is power and understanding every aspect of your real estate investment is a MUST in today's marketplace!
Comments (3)
With money being more expensive to borrow, how far into the future do you see this affecting the average American? I know every change in the economy has a delayed response but how long a delay is the question.
Posted by havensofmanhattan | June 14, 2007 11:07 AM
Havens - Hard to say because there are so many people out there that don't keep tabs on this until they have a done deal and need to get a loan and only then figure out that rates surged.
However, I would say it hits home to most buyers in 4 weeks or so, especially since mass media is all over the recent surge in rates..That should make most buyers re-assess and therefore re-adjust their purchasing power earlier than normal.
Posted by Noah | June 14, 2007 11:33 AM
That makes a lot of sense especially with the media constantly on top of things like this. Thanks for the quick answer, I always learn a lot from reading your posts.
Posted by havensofmanhattan | June 15, 2007 9:41 AM