Rising Mortgage Interest Rates May Scuttle Recovery

Rising Mortgage Interest Rates May Scuttle Recovery

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What This Means For You, The Consumer

President Obama’s bid for a full economic recovery may be set back by many months thanks to rising interest rates which is making it more expensive for homeowners to finance their houses. Since bottoming out a few months back at a near historic low of 4.75% for a fixed-rate, thirty year mortgage, rates have begun to climb again and are now a full point higher.

interest ratesThe recovery of the housing market is one of the pillars of President Obama’s economic stimulus strategy and without low mortgage rates in place prospects for an early recovery have likely dimmed. After more than a year of sharply declining home values and record foreclosures, the battered housing market was beginning to show signs of recovery this spring, but refinance activity has since plunged.

Mortgage Refinancing Drops Sharply

Yesterday, The Wall Street Journal (WSJ) underscored the significance of the rate trend in its headline article, “Rate Rise Clouds Recovery.” WSJ noted that refinance activity – an important part of the mortgage financing segment – had dropped significantly at J.P. Morgan Chase & Co., one of the largest lenders in America. Investors have been spooked by sharply higher bond prices which push up mortgage interest rates.

Of course, policy makers are seeing some different signs in the increased Treasury yields, pointing out that investors see that the economy is improving. Those increases could presage another concern, inflation, which could wreak economic havoc perhaps more so than the declines felt in the housing market.

The Fed Response

For its part, the federal government has promised additional intervention, saying that the Federal Reserve will buy Treasury notes within the next week or so. Yet, even as the Fed made that announcement, rates have continued to stay static or climb slightly.

Another wild card in America’s recovery effort is the price of oil which recently pushed above $70/barrel, marking six straight weeks of increases. Although gas pump prices are well below the $4 per gallon figure experienced last summer, they have now climbed by more than 60% since bottoming out late last year. Consumers are just now starting to take their summer vacations, with some likely to refine their plans if fuel prices continue to increase.

Adv. – Despite rising interest rates, now is still a good time to refinance your home. If your current mortgage offers unfavorable terms, why not explore refinancing while rates remain below 6%? Visit PickMyMortgage.com or SayLending.com to find the best mortgage opportunities out there.

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Categories: Home Financing

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