Major Jump In Mortgage Rates Hasn't Hurt Home Sales—Yet
The recent surge in mortgage rates hasn't put a crimp in the housing recovery so far, but some economists think it could if rates head much higher.
The 30-year fixed rate jumped to an average 5.32 percent this week, up from 4.91 percent the previous week, according to Freddie Mac. Refinancings are already down sharply due to the higher rates, but home purchases continue to recover slowly.
In fact, the rise in mortgage rates in recent weeks is causing some homebuyers to jump now before rates head any higher.
"I think that as rates look like they are going up, there’s a rush to buy," says Diane Saatchi, senior vice president and associate broker with the Corcoran Group. "In the short run, there's an increase in activity to lock in rates. We're seeing a bit of a frenzy to buy."
But if mortgage rates continue to climb, that could slow any housing recovery says Mark Zandi, chief economist with Moody's.
"If rates rise any more for any period, that will significanlty hurt housing sales and the housing market," says Zandi. "I think fixed mortgage rates around 5 percent will entice buyers, If they are over 5 percent, that will hurt."
Still, Greg McBride, senior analyst at bankrate.com says home buyers don't need to panic—at least for now.
"The move up in rates is not a barrier to affordability," says McBride. "Mortgage rates are still at historical lows and coupled with much lower home prices, they still provide home buyers with tremendous opportunities."
On Tuesday, the National Association of Realtors on Tuesday reported that pending home sales, based on new sales contracts, rose 6.7 percent in April, the biggest jump since October 2001.
There are financial incentives for people to buy now, says Lawrence Yun, chief economist at the National Association of Realtors.
"Many first-time home buyers are taking advantage of the $8,000 tax break from the Obama administration, which runs out on November 1st of this year," says Yun.