Can the Housing Market Survive Higher Rates??

Home buyers may rush purchases in the coming months as a looming increase in mortgage rates is largely believed to be nearing.

Mortgage rates have been hovering around 50-year lows for the past five years. The Federal Reserve is expected to begin raising short-term interest rates later this year, which will put pressure on all mortgage rates soon after, including the 30-year fixed-rate mortgage which has been averaging around 4 percent lately.

Even the slightest tick up in mortgage rates can impact mortgage payments. As The Wall Street Journal notes, a 3.9 percent mortgage rate on a $400,000, 30-year loan would amount to about a $1,890 mortgage payment. On the other hand, if rates rose just one point to 4.9 percent, that mortgage payment would rise to $2,100 a month. If rates rose again to 5.9 percent, payments would amount to $2,370 a month.

Still, most economists believe the majority of home buyers will continue to desire to buy, at least for the short term, even with higher rates. That’s because the monthly cost of an average size-home remains affordable when compared with average incomes. On the other hand, apartment rents have been rising sharply.

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