Last summer, some economists warned that mortgage rates could climb a half to a full percentage point in a hurry if the Fed stopped buying mortgage securities.
But mortgage rates may not rise as much as many think.
The popular 30-year fixed climbed to 5.08 percent from 4.99 percent last week, and now sits firmly above the 4.78 percent average seen a year ago.
Of course, the interest rate on a 30-year mortgage is still very attractive historically, considering 4.78 percent was the lowest rate on record.
So the big question is how high will mortgage rates go?
Well, good economic news generally pushes mortgage rates higher, and if we’re truly recovering, mortgage rates should continue upward.
But home prices in many areas still seem overpriced, considering the shadow inventory and widespread unemployment, which makes you wonder if something must give.
If mortgage rates continue higher, housing affordability will decline, and that could dent the fragile recovery in the process.
Assuming mortgage rates continue to rise, home prices may need to fall to compensate for the reduction in affordability.
For that reason, I don’t see mortgage rates climbing considerably higher. Heck, people aren’t buying even with the ultra low rates and the homebuyer tax credit.
So yes, mortgage rates will probably trend higher, but I don’t see any significant movement until there is real proof of a recovery.