Cheap Mortgages Going Away Quickly: What 7% Will Mean

We are quickly saying good-bye to the era of “cheap” mortgages.

The 10-year treasury continues to rise, which is pushing up fixed mortgage rates. Bankrate.com lists the national average mortgage rates:

30 Year Fixed:

This week: 6.29%
Last week: 6.08%

If you are buying a more expensive house and need a jumbo loan (which usually means anything over $417,000- but it depends on your area), then you’ll pay even more.

30 Year Jumbo:

This week: 7.41%
Last week: 7.26%

In some markets, these numbers are much higher with Jumbo rates approaching 8%.

No wonder the housing market has stalled. We are returning to 2001-level interest rates. Buyers have short-term memories. To them, 7% rates seem incredibly high. Yet from 1982 to 1993, fixed mortgage rates never went below 10%.

Think about that for a minute. 10%!

But prices were much lower at the time making house payments affordable. Now, with the price spike, any rise in interest rate just adds to the pain.

So while prices are slowly declining again, the rise in interest rates could counteract some of that price decline making it still more difficult to buy. Add to that the more stringent downpayment requirements and you have the makings of a very slow housing market indeed.

The Silver Lining

For buyers who have been waiting on the sidelines for their dream houses to become affordable, there’s some good news. If you have good credit and a downpayment, you’ll be in the driver’s seat. As prices slide further, you’ll have the opportunity to get a great housing deal.

Patience is the key. Yes, rates are going up but prices will come down. You can always re-finance in future years to a different interest rate (just ask those who bought homes in 1980-1981 with rates of 18%!). Eventually, they all got lower interest rates.

But you’ll never get a lower price on your house.