Mortgage Rates at Seven-Year High

Mortgage rates have now topped the 5% mark, said the Mortgage Bankers Association this week with the average 30-year fixed home mortgage hitting 5.05%, which is the highest rate since February of 2011.

Freddie Mac the federal mortgage buyer said that rates for a typical 30-year fixed mortgage are 4.9%, which is also a high of seven years.

Mortgage rates have climbed due to the strength of the economy. The rate of unemployment is at the lowest it’s been in close to 50 years and wages have increased. Consumers have been spending while businesses have been investing.

That in turn has led to the U.S. Federal Reserve to increase its short-term interest rates, and bond yields for the long term that help to influence the interest rates for mortgage, have also risen.

The rise in the mortgage rates is one more part in the new cycle of interest rates rising, and stock investors taking risk out of portfolios they hold.

Although those are also cautionary signs, they are in this case a response to strong factors in the economy. The Fed has raised rates in an attempt to keep the economy from overheating.

However, now mortgages have topped the 5% mark and analysts wonder if that will scare buyers away. Rates are quite low nevertheless compared with the average rate for a 30-year mortgage of 6.5% in 2007, prior to the big housing collapse.

But the prices of homes have started to cool in many U.S. markets. Prices are not rising at the rate they did before in Chicago, New York and Washington.

According to one recent report, prospective sellers are being forced to lower prices in certain markets that before were red hot like Dallas, Portland and San Diego.

Buyers are wary of paying more and that may be taking a toll on homebuilders. Earlier in the week D.R. Horton said it expected home sales for 2018 to fall below forecasts on Wall Street. Lennar recently lowered it orders outlook as well.

In September, Freddie Mac said that the U.S. housing market has stalled.

Improvement may not come quickly. Freddie Mac announced that is expects overall sales of home, both existing and new to fall 1% in 2018, mainly because of not enough affordable homes being on the market and an increase in the mortgage rates.