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November 23, 2014

Could Rising Mortgage Rates Help Housing?

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Could Rising Mortgage Rates Help Housing?

Mortgage rates are still near record lows but they have been inching up slightly in recent weeks as the U.S. economy shows some signs of improving. The 30-year fixed-rate mortgage—the most popular choice among home buyers—reached its highest level in more than six months last week, averaging 3.63 percent, according to Freddie Mac figures. 

Mortgage rates are projected to rise higher this year, which could make buying a home more expensive. But some housing analysts say that the higher rates could actually help aid the housing recovery.  

Home buyers who have been lingering on the market may finally move forward on a purchase. The increasing rates may drive home the point that  while borrowing is still cheap, they'd better lock in a rate now before rates move any higher. 

"Rising interest rates alone are not enough to slow down the housing recovery," Barney Hartman-Glaser, a real estate finance professor at Duke University, told Fortune. “My sense is that underwriting standards are getting easier to satisfy, and so we would expect rates to rise as slightly more risky borrowers are brought into the fold."

Andrea Heuson, finance professor at the University of Miami, says that the increase in mortgage rates also interestingly coincides with increased demand for loans across U.S. businesses—which also could prove positive for home sales. Commercial and industrial loans reached $1.5 trillion, up more than 12.5 percent in January from a year earlier. “The recent increase ... bodes well for the future of the U.S. economy,” Heuson told Fortune. When businesses borrow more, she says that usually boosts the economy in several ways, from job growth to increasing consumer confidence as well as increasing home sales. 

Source: “Why higher mortgage rates will help the housing market,” Fortune (March 18, 2013)

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Improving Economy Sends Mortgage Rates Higher