Home Mortgage Rates HistoryHome Mortgage Interest History
MMRs and mortgage rates, 2003-2006
Home-Mortgage: Interest for the Federal Reserve of New York. Sourcecode: Westborough, Mass. Money Markets Insight, Westborough, month. Average for the year. Bankrate, Inc., North Palm Beach, Fla., Bankrate Monitor, once a week. Average calculated on the day-to-day returns on offers in the alternative markets, banking discounts.5 Average calculated on the day of issuance, banking discounts.
Actual interest rates (in the prime market) for traditional mortgage loans, which reflect rates and duties as well as the contractual interest rates and expected mean redemption at the end of ten years. U.S. Federal Housing Finance Board, Interest Rates & Conditions for Traditional Mortgage, Annual Review. Other than as mentioned, Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, every month.
Are higher mortgage rates going to destroy the residential property markets?
US mortgage rates have been rising for 9 successive week and have reached their highest level since January 2014. This is only in comparison with the recent past, which included the historic low of November 2012 (3.31%). Mortgage rates are still quite low today in a historic setting. Mortgage rate over this period: 7.70% over 30 years.
Adjusted for the effects of rising interest rates, mortgage interest rates in actual terms (2.5%) are also well below the historic average (4.2%). We have seen the cheapest mortgage rates in history in this century. Following the slump in residential construction and the subprime mortgage crises, the Federal Reserve has made a house price rally one of its main goals.
For seven years (December 2008 to December 2015) they kept the key interest rate at a high of 0% and have since raised it at the lowest rate in history. Lower short-term interest rates have lowered longer-term treasury rates, which in turn has lowered mortgage rates. Fed also bought over $1.75 trillion of mortgage loans in 3 different laps of QE and further suppressed mortgage rates.
The Fed has drawn up a plan for 2018 to progressively cut its mortgage portfolio: $8 billion a month in January, $12 billion a month in April and a limit of $20 billion a month in October. It would take over 7 years at a rate of 20 billion dollars a month for the Fed to liquidate all its mortgage portfolios.
However, this gradual contraction of the Fed's external account coupled with higher short-term interest rates (the Fed is planning to raise three more in 2018 ) could add further bullish pressures to mortgage rates. Are higher mortgage rates going to ruin the residential property markets? Whilst "everything else is equal", a higher mortgage interest rates for the residential property markets may be inferior to a lower one, everything else is never the same.
Interest rates on mortgage loans are just one of many things that affect house values. There are other crucial factors: dwelling choice, dwelling demands, affordable pricing, rate of Inflation, mortgage access (how simple is credit), business and pay expansion, joblessness, demographics, and more. Few indications suggest that low mortgage rates alone will result in higher house rate profits.
Indeed, we have seen exactly the opposite on a nominally based assumption. While the highest notional house rate increases occurred in times with the highest mortgage rates (10.3%-18.4%), the lower notional house rate increases occurred in times with the low mortgage rates (3.3%-5.6%). House values are linked to long-term increases in the rate of rate of inflation.
It makes intuitive sense to do this because the costs of a house should be related to the costs of constructing it (material/work inflation) and the capacity to buy it (wage inflation). In times of higher rates of inflation, you are more likely to see higher interest rates/mortgage rates, higher rated GDP and higher rated domestic prices growing.
On the other hand, in times of lower rates of inflation or deferred taxation, you are more likely to see lower interest rates/mortgage rates, lower rated growth in gross domestic product and lower rated domestic product output as well. As we have seen, during the years of the real estate boom in which real estate values rose quickly (over 10% per year from 2002-2005), while overall taxation remained muted ( 2-3%).
Consequences were not nice and the drop in mortgage rates would not turn out to be a cure-all. House prices dropped more than 27% nationwide from a high in 2006 to a low in 2012. Price levels have rallied since then and have risen 46% to reach new heights. In the last five years, house price levels have again significantly exceeded the rate of rate of inflation.
A more falconry Fed and a sustained increase in mortgage rates will decelerate the rate of house prices increase (6.3% last year)? Provided the increase in mortgage rates is combined with higher economic/wage expansion and sustained job creation, the residential property markets could perform well. A far more serious would be a situation in which mortgage rates fall again due to a weak economy or another downturn.
Thus, perhaps what eventually "ends the residential market" is not a surge in mortgage rates but the failure to keep rate up.