Interest Rates Rising, Home Sales Moderating

January 12, 2008

Mortgage interest rates are rising and sales of existing homes are stabilizing as we launch into a new year, setting the scene for more "fence-sitting" consumers to take action with their plans to purchase and finance a home, or refinance an existing mortgage before the rates rise to higher levels.

"Stronger consumer spending and an increase in the core price deflater is causing long-term bond yields to inch up, with mortgage rates following," said Frank Northaft, chief economist for Freddie Mac, a major government-sponsored buyer of mortgages. "However, recent data releases suggest there might be further weakness in the housing market and that could allow interest rates do drift back down from time to time."

Existing home sales rose in November, indicating a stabilization in housing in the wake of mortgage disruptions in 2007, according to a December 31 report from the National Association of Realtors. Total existing-home sales - including single-family, townhomes, condos and co-ops - rose 0.4 percent to a seasonally adjusted annual rate of 5 million units in November. "Existing home sales should continue to hover in a narrow range, and that’s good news because it will be a further sign that the housing market is stabilizing," said Lawrence Yun, NAR’s chief economist.

As we enter the new year, the average rate for a 30-year fixed-rate mortgage is up to 6.17 percent with an average 0.5 points (fees), according to Freddie Mac. The rate for a 15-year fixed-rate loan is 5.79 percent. Because of emerging factors in the current market, some analysts are predicting 2008 will be a particularly big year for refinancing.

Posted in Lending, Real Estate