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Interest Rates Calm While the Housing Market Strengthens

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Mortgage loan interest rates relaxed this week after a recent surge according to reports provided by loans.org.

For the week ending July 3, 2013, the 30-year fixed-rate mortgage (FRM) averaged 4.19 percent. This was a decrease from 4.34 percent seen last week.

The 15-year FRM averaged 3.26 percent, a decrease from 3.38 percent reported last week.

The 5/1 adjustable-rate mortgage (ARM) interest rate averaged 3.22 percent, a small decrease from last week’s rate of 3.29 percent.

All three rates have calmed since the surge seen in the previous two weeks. The rapid increase was caused by a Federal Reserve Bank of New York (Fed) announcement stating that the Fed will likely reduce and then eliminate bond purchases. This announcement caused uncertainty and forced the mortgage loan interest rates to rise by several percentage points.

Donald Frommeyer, president of the National Association of Mortgage Brokers (NAMB), said that the rising rates will cause lenders to be more selective.

“Anytime the rates go up, it affects debt ratios,” he said.

Borrowers are approved for new mortgage loans only when their debt-to-income ratios fall within a specific lender’s spectrum. Frommeyer said that when rates increase, it eliminates those potential borrowers who are on the threshold of their debt-to-income ratios.

This week’s lower rates have helped keep homeowner affordability strong in most of the United States. A June report by Freddie Mac found that despite recent increases, the interest rates would need to exceed 7 percent in order for homeowners making the median income to be unable to afford a median price home.

“While rising interest rates will reduce housing demand, rates would have to increase considerably more before the reduction in demand for home purchases would be substantial across the country,” the report stated.

Frommeyer believes that mortgage loan interest rates will remain calm in the coming weeks and hopes that Fed chairman Ben Bernanke will make a logical decision about when to reduce and then stop bond purchases.

“If this is done too quickly, it is going to hurt the home market,” he said. “If you raise the rates too high, you are going to be right back to where they were in 2006 and 2007.”

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