Fixed mortgage interest rates have increased for each of the last four weeks, now going slightly above 4%. The upward pressure on rates began when investors started selling German bonds, triggering a sell-off in government bonds including the United States Treasury 10-year security.
Even though rates have remained below 5% for over five years, the housing market has still not recovered from the slowdown that has persisted for quite a number of years. During recent previous periods when the mortgage rates were several percentage points higher than they are now housing had nevertheless often performed well. However, a “perfect storm” of home price depreciation, increased unemployment and tighter underwriting standards led to stagnation in the housing market that lower interest rates have not been able to overcome so far.
Even though lower interest rates might not jumpstart the housing market they usually cause an uptick in refinance activity. Refinances have been slow for more than two years since the Federal Reserve’s announcement of the end of its bond-buying program caused 30-year fixed rate mortgage interest rates to rise almost a full point in a month. Interest rates generally trended downward over this period but the amount of mortgages refinanced in 2014 fell to less than half a trillion dollars from more than twice that amount in 2013 and will probably be even lower in 2015.
Single-family home construction starts for April increased by more than 16%, the highest increase in over seven years according to the Commerce Department, and overall starts (including multi-family units) increased by over 20%. Despite this, the Mortgage Bankers Association’s seasonally adjusted index of purchase mortgage application activity fell by nearly 4% in the week ending May 15.
Some experts believe that consumer confidence and the perceived strength of the economy are more important to the potential purchaser than is the level of the mortgage interest rate. However, all other factors being held constant, a lower rate will translate into a more affordable home for the purchaser.