Higher Mortgage Rates Won’t Impact Recovery: Freddie Mac

By Mani
Updated on

Freddie Mac (OTCBB:FMCC) in its latest U.S. Economic and Housing Market Outlook report, doesn’t expect rising interest rates to stall the U.S. housing recovery.

Higher Mortgage Rates Won’t Impact Recovery: Freddie MacFreddie Mac in its Outlook for June feels at today’s house prices and income levels, mortgage rates would have to be nearly 7 percent before the U.S. median priced home would be unaffordable to a family making the median income in most parts of the country.

30-year Fixed Mortgage Rates Remained Low

According to the report, interest rates have climbed about 0.5 percentage points since the beginning of May and are expected to hover around 4.0 percent during the second half of the year.

According to Federal Home Loan Mortgage Corp (OTCBB:FMCC) researchers, interest rates have risen rapidly recently, with both the benchmark 10-year Treasury and the 30-year fixed-rate mortgage rates rising by more than 40 basis points during May and early June. For most of 2013, 30-year fixed mortgage rates have remained at or below 3.5 percent, but the recent movements have pushed the rate to about 4.0 percent.

Mortgage Rates Near 60-year Lows

According to Federal Home Loan Mortgage Corp (OTCBB:FMCC)  researchers, low mortgage rates have helped fuel the recent good news in housing, where house prices have been increasing across most of the country. While it’s true that rising mortgage rates and increasing house prices work together to drive up the cost of buying a home, mortgage rates remain near their 60-year historical lows helping to keep homebuyer affordability strong.

Freddie Mac Feels Rising Interest Will Affect Refinancing Volumes

Freddie Mac  researchers feel when mortgage rates start increasing a sharp decline in refinance volume can be expected in the second half of this year. Historically, the refinance share of mortgage applications has been very sensitive to mortgage rates.

According to the report, refinance originations are expected to total about $1.1 trillion in 2013, down from $1.5 trillion in 2012.

Freddie Mac researches observe house prices in most parts of the country are very affordable. However, there are exceptions in some high-cost markets such as San Francisco south to San Diego, and Washington, DC north to Boston, as well as Seattle and Miami.

However, the Outlook report observes in some metro areas affordability is already out of reach for a typical family. The researches feel an increase in mortgage rates, coupled with house price growth will have a more significant impact on purchase activity in these markets.

The researches feel it would take a much steeper interest rate hike for potential homeowners to feel the economic pinch of rising rates.

Interestingly, with improved sentiment in the housing market, shares of the mortgage giants Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)  are now up 607 percent and 523 percent in the past six months in over-the-counter transactions.

The Outlook report notes that even with increases in house prices and rising mortgage rates, home purchases in most of the country will continue to be very affordable. Federal Home Loan Mortgage Corp (OTCBB:FMCC) researches feel nothing in the recent trends suggests that we need to fear a major slowdown.

Freddie Mac concludes rising rates will not derail the recovery, and such rising rates are an indication that the overall economic situation is improving, which should also be good news for rival, Federal National Mortgage Association (OTCBB:FNMA).


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