Will Rising Rates Jeopardize Housing Recovery?

The 30-year conforming mortgage, a popular choice among borrowers, has been on the rise the last few weeks and inched above 5 percent last week for the first time in a year. Experts predict it will go even higher in the coming weeks too.

The 30-year fixed-rate mortgage most recently stands at 5.1 percent, compared to 4.2 percent from last October. That rise equates to about $50 extra in monthly payments for 30-year mortgage rate borrowers who have a median priced home of $170,000 with a 20 percent down payment.

While the rising rate could be significant for home owners, mortgage rates could rise even further–another point or two–without hampering the overall affordability of homes, says Paul Dales of Capital Economics in Toronto.

“Relatively low house prices mean that affordability remains very high by historical standards,” Dales says.

The increase in rates mean buying a median house will consume 14 percent of the median income, which is still nearly half of the 25 percent median income Americans once sank into their homes during the housing bubble.

Experts say the continued weak job picture, skyrocketing foreclosures, and tighter lending standards are much more of a concern than the rising interest rates.

Source: “Don’t Sweat Rising Mortgage Rates,” CNNMoney.com (Feb. 15, 2011)

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