Better
duck Chicken Little!
If you believe the somewhat breathless reports coming
from national business media there is
“panic” emerging from the potential that the sky will fall as the result
of rising interest rates.
A sampling of headline briefs on financial news channel
CNBC’s website:
- Yikes! Mortgage rate spike-what it means for you
- How rising interest rates hit the housing market
- Preparing your budget for rising rates
- How to position yourself for a rate hike
- Is it too late to finance your home
- $ave Me: Before the Fed raises rates, ready your credit
“I
heard a new word today from a mortgage lender, 'panic,'” said CNBC’s Diana
Olick, who went on to explain clients are no longer willing to let rates float
until their loan closes but are rushing to secure locks.
But
to put this in perspective, anyone who is old enough to remember double digit
rates would probably suggest taking a deep breath before going into the duck
and cover pose.
In
May the average 30-year Freddie Mac mortgage rate was 3.84%, although the
recent "panic” has apparently been stimulated by a rapid increase to about
4.08% as reported by Mortgage News Daily on June 5.
Some
of the rush to buy or refinance that house and lock those rates is attributed
to speculation on Federal Reserve rate deliberation and snippets of comments by
Chairman Janet Yellen.
On
top of that the recent jobs report was better than expected, and suddenly there
seems to be fear that--horrors!--the economy is indeed improving, which is
often viewed as a trigger for the Fed to tighten rates and control the
inflation gorilla. No more quanitative easing?
Nevertheless
for the younger generation let’s look back to August of 1981 when the 30-year
Freddie Mac rate topped 17.0% and was still above 10.0% in late 1990. Even as
recently as July of 2006 the rate was 6.76% - 2.68% higher than on June 5 this
year.
Applying
the recent uptick in rates from 3.84% to 4.08% to gauge the impact in the
purchase of a Bend home at the current median price of about $315,000, with 20%
down, or a loan of $252,000, the monthly payment would increase by a whopping $35 a month.
Is
that really a deal breaker for 99.99% of potential home buyers in that price
range?
Admittedly,
as the CNBC discussion pointed out, the issue with some borrowers is concern
that rates will continue to rise and it’s now or never to make a move. If
that’s the case, other factors such as more jobs and at least some improvement
in wages and the overall economic climate will enable borrowers to afford
gradual 30-year rate increases.
And
remember what happened when Chicken Little met the Fox on the way to warn the
King? Maybe better to sit tight and not panic.
