Rising Rate Environment | Mortgage Rates Hit Seven-Year High

Mortgage rates hit their highest level in seven years — since the week of April 14, 2011 — according to Freddie Mac’s latest Primary Mortgage Market Survey. The 30-year fixed-rate mortgage jumped 19 basis points to 4.90 percent.

“Mortgage rates are drifting upward again and represent continued affordability challenges for prospective buyers –especially first-time buyers,” Freddie Mac Chief Economist Sam Khater said.

He identifies three primary causes of rising rates: a strong economy, higher US government debt issuances and escalating global trade tensions.

Khater notes that rising interest rates coupled with rising housing prices are decreasing purchasing demand, particularly among first-time buyers. The initial down payment poses a significant hurdle for buyers in the current market.

Mark Fleming, First American chief economist, argues that expected interest rate increases are temporarily increasing home sales.

“We’re seeing demand effectively being pulled forward. People are buying homes now because they expect future rate increases,” Fleming stated in a recent CNBC interview.

In the long-term, interest rates are predicted to rise through the end of 2018 and 2019 before dipping in 2020. The Federal Reserve is expected to hike rates twice before the end of the year and two more times in 2019. As the 10-year treasury yield increases, so will mortgage rates.

A rising interest rate environment is here to stay. Regardless of whether home sales increase or decrease in the short-term, long-term rate increases will steadily exert downward pressure on housing demand.

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