If you’re in the market for a mortgage, or a refi on your old one, you’re probably feeling the effect of a recent rise in rates. Mortgage rates have jumped nearly a full percentage point since the start of May, leaving many to wonder why, and what at it means for their finances.
Here’s what you need to know.
What Started it All
Starting in mid June, stock market investors drove rates up in a reaction to news that the Federal Reserve would being easing it’s investment into the mortgage market – something the agency did to stimulate the economy. The move had the effect of pushing rates to record lows and kickstarting the recovery of the housing market. Many have expressed concern that the gains could be undone as interest rates rise along with home prices, potentially driving down demand from homebuyers.
Fed Says it Won’t Hurt the Economy
Fed Chairman Ben Bernanke urged caution last week, however, and expressed hope that rising rates wouldn’t hurt the economy. Speaking in front of the House Financial Services Committee, he said, “I think we need to monitor, particularly the housing market, to see if there is any impact from higher mortgage rates…I haven’t seen anything that points strongly to any particular problem, but again it’s very early.”
Your Dream Home is Still In Reach
Despite the recent rise, however, rates are still historically low. More good news: rates are beginning to taper off as investors quell their nerves and a new report by Fannie Mae suggest that higher rates may not be so bad for the market. The housing giant conducted a study, comparing historic mortgage rates with home price and sales data as far back as 1990. Researchers found that, while rising rates were likely to negatively impact the number of home sales, they had very little impact on home prices.
Photo Courtesy, 401(K) 2012.