THE INCREASE IN MORTGAGE RATES COUPLED WITH RISING HOME PRICES MAY DAMPEN DEMAND, BUT THE RECENT UPWARD MOVEMENT IN RATES IS NOT ENOUGH TO MAKE HOUSING UNAFFORDABLE TO MEDIAN INCOME EARNERS, ACCORDING TO FREDDIE MAC’S ECONOMIC AND HOUSING OUTLOOK FOR JUNE.
Rising Rates Will Reduce Demand, But Won’tEliminate Affordability BY ESTER CHO, DSnews.com
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In fact, the GSE’s analysis showed mortgage rates would have to climb to nearly 7 percent before a median priced home is no longer affordable to median income earners in most parts of the country.
From May to early June, the 30-year fixed-rate mortgage spiked more than 40 basis points, ending just below 4 percent last week after staying at or under 3.5 percent for most of this year, according to Freddie Mac.
The GSE’s report also pointed out that rates are still near 60-year lows. “With the exception of high-cost markets, primarily San Francisco south to San Diego, and Washington, DC north to Boston, which are already challenged with affordability, house prices in most of the country are very affordable,” said Frank Nothaft, Freddie Mac VP and chief economist.
In San Francisco, the median income is $91,000, while the median price for a home is $643,000. Even if interest rates stayed at 3.5 percent, a median income earner could afford a home that is $362,000, well below the median price of a home, according to Freddie Mac.
Housing in Detroit, on the other hand, would stay extremely affordable even if interest rates were to rise to 8 percent. With a median income of $64,000 and a median home price of $67,000, a homebuyer in Detroit could still afford to buy a home that costs $177,000 if interest rates increased to 8 percent.
Even though rising rates won’t eliminate affordability in most major metros (at least until SENT TO YOU BY they rise to 7 percent), the GSE expects demand to be reduced.
“While rising interest rates will reduce housing demand, rates would have to increase considerably more before the reduction in demand for home purchases would be substantial. Nothing in the recent trends suggests that we need to fear a major slowdown. A gradual rise in interest rates will not derail the recovery, and are an indication that the overall economic situation is improving.”
Nothaft added, “During the second half of 2013, Freddie Mac expects the 30-year rate to land around 4 percent. This upturn in rates is forecast to cause refinance volume to fall sharply to about $1.1 trillion later this year, down from $1.5 trillion in 2012.”
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Rob says
Wow that’s some staggering information.. Where can we go to afford housing??
Gangesh says
Great Post!
Jim Striegel says
We’ve experienced such a boom from people from to the area because of affordability that I don’t think this will happen here. Great article.
Karen says
Real Estate rates and housing is ever changing and information like this is really helpful
Teresa says
That is some great information. Too bad there are not more jobs around here so people could afford to buy themselves a home. I am grateful we are not in that position of trying to afford a home.
Deanna Heiliger says
Great information…I am so glad my husband takes care of all of this!
Brad Lynch says
Karen,
Thanks for the “like”! 🙂 Have a great week!
Brad Lynch says
Teresa,
I like that you “like”. Yeah, I’ve been meaning to stop procrastinating and invent more jobs, but I think I’ll stop procrastinating tomorrow! LOL Really though, I believe the job market will increase once we sustain a year or two of housing increases. That is what has brought us out of recession everyother year in our history. Best wishes!
Brad Lynch says
Deanna,
lol…mortgage, finance, and economic jargon/terms are kind of like beer, if you will…you build a tolerance. 🙂 If you have never drank beer, you drink a couple and you start to get a slight blur. Well, if you just read stock, bond, finance, and mortgage terms for the first couple times, you also start to feel like you are just reading in a blur. Enough repitition and it comes around. lol Have a great week!
Christy Garrett says
I have heard that the market is in good condition and that now is the time to buy and sell properties. I wanted to thank you for taking the time to educate us on how the mortgage industry is working. A year ago we took advantage of the low rates and refied our house. It lowered our payment significantly and was worth it.
Brad Lynch says
Yes, the low rates coupled with the sudden rush in the Real Estate market has made for a very good year for me. I’ve helped a lot of past clients do the same as what you did. It’s nice to be able to save money. Best wishes!
Kevin Hardin says
Defining “affordable” is the quandary. At some point, those debt to income ratios are going to get squeezed. They may be able to afford the higher priced home, but there are other things they will not.
Dov Shapira says
There is always demand for housing, The price has to be attractive
It’s a number game
Meli says
Lots of great information. I’m glad that houses are still going to be affordable.
Heather Petersen says
Great post! I am grateful that my husband worries about all of this!
Tina says
This looks like a Catch-22 to me. When I sold my home to downsize, I sold at the top (actually the real estate bottom fell out the very next day) but I also purchased my little condo at the top (and the value fell by 82%). Now the value on the condo is beginning to return (fortunately I’m not upside down) but I don’t think it will ever be up at the top fo the bubble again.
Veronica says
Great time to buy a home I think, especially here in Houston
Diana says
Good to know this information. Thanks.
Deborah says
It’s interesting how demand really drives the housing market. It is a good sign for homeowners that housing values are going back up. Though in a few years, people who didn’t buy but thought about it will be sorry they didn’t do it while interest rates and prices were rock bottom low.
Robin says
Man, that’s some good information to know… I sure am glad I found this blog to keep me in the loop because things change so much, who knows what is going on… thanks for the great explanations 🙂
Don Purdum says
I believe the rates are only going to go up as the Fed stops pumping money into the market. Everything will get very expensive in the next few years I’m afraid.
Casey Gardner says
Great article. Thank you for sharing. Good to know being in the home remodel pool business is a part of this action.
Brian T says
Great article. How long do you think the interest rates might stay here at 3-4%? I know a lot of people are saying “now is a great time to buy” but that’s similar to what folks said in the last bubble. I think if you do buy it should be a reasonable house that fits your needs without over buying. I see a lot of families get into situations they can’t afford. Hopefully people will be smart when buying. Indeed an interesting time in realestate and in the economy as a whole…thanks for sharing your insight!!
Brad Lynch says
Brian,
Thanks for the comment. Regarding rates, I just went to an economic forecast from a very well accredited economist yesterday and he said, and I quote, “I think rates 12 months from now will go from the high 4% range they are now to 6.5% – 7%. At least I hope, because if not, rates will actually be higher”. Now, economists always seem to speak very definitive on stuff, and many times are not as accurate as we would think. To me, in this case, that means we could see rates that high in the next 12 months to 24 or 36 months. My thoughts are, we are at the end of rates in or below the 4% for a while soon. The good thing is, the DFW, where I work, has a really strong actual growth in the job market, so it shouldn’t slow the increase in the purchase market…affordablitily won’t go away I do not believe. My thoughts, for what they are worth. 🙂
Brad Lynch
YMGFL