What Happens When Interest Rates Rise?

Freddie Mac released its U.S. Economic and Housing Market Outlook for June showing the effects rising interest rates are having on certain markets around the country and the overall housing recovery.

Overall, however, mortgage interest rates would have to rise to 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.

Outlook highlights

• Interest rates for 30-year fixed-rate mortgages have risen about 0.5 percentage points over the past several weeks and are expected to hover around 4 percent during the second half of 2013.

• With rising mortgage rates, expect a sharp decline in refinance volume in the second half of this year; refinance originations are expected to total about $1.1 trillion in 2013, down from $1.5 trillion in 2012.

“The recent upturn in interest rates is sparking fears among some that the nascent economic and housing recoveries will be choked off before they produce sustained growth,” says Frank Nothaft, Freddie Mac vice president and chief economist. “However, with the exception of high-cost markets – primarily San Francisco south to San Diego, and Washington, D.C., north to Boston – which are already challenged with affordability, house prices in most of the country are very affordable.”

 





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