30 Year Mortgage Rates on the Rise while Loan Applications DropLast week was the first time since last April that 30-year
mortgage rates averaged over 5%, according to the FDMC. Though unemployment has dropped a full percentage point in the last two months, and unemployment benefit claims are at their lowest point since the recession began, the housing market is still struggling to find traction.
Interest rates are on the rise since the Federal Reserve decided to purchase $600 billion in government debt in order to stimulate the economy. Fearing the effects of inflation, investors have been pushing for higher interest rates.
Many expect the 30-year mortgage rate to continue upward to around 5.5%. Though historically rates are still incredibly low – it wasn’t until 1991 that the interest rate fell below 10% permanently – sharp increases would have drastic effects on the housing market. Just last November the rate was at a 40-year low of 4%.
Despite historically low borrowing rates and encouraging signs of economic improvement loan applications dropped another 9.5% in the week of February 11th, reaching the lowest point since November of 2008.
Decreasing employment and a stabilizing economy should be encouraging signs for homebuyers. The drop in loan applications, however, can be attributed to the spiraling drop of loan refinancing requests. Unfortunately, loan-refinancing applicants are being dissuaded by the rising interest rates, while prospective homebuyers focus more on other factors, like price and location.
The Obama Administration created the
Making Home Affordable plan to offer qualified applicants with options for refinancing their mortgages as an effort to slow the onslaught of foreclosures in
California and Florida.
Foreclosures have slowed down in 2011, mostly due to banks now taking their time to review foreclosure paperwork in the aftermath of the recent foreclosure debacle. Experts do believe, however, that the amount of foreclosures will start to decrease and that 2011 is on the down side of the recession bell curve.