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 Mac

I 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:

Money is getting MORE EXPENSIVE to borrow. Ultimate effects still yet to be seen

Global inflation IS still a concern and rates are rising to slow fast growing economies. The lag effect of higher global rates will hit home down the road!

Housing nation-wide is still in correction mode. Manhattan is only beginning to slow down from frenzy months of JAN - APRIL

Our Fed will NOT cut rates. Rather, rates will be on hold with a bias towards tightening if inflation pressures don't continue to moderate

Oil prices remain high signaling continued strong global demand. I'll touch base on this when I return as the next forward looking indicator to see how rising rates are actually slowing global economies

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!