Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Kiss 4% mortgage rates goodbye

chart_rising_mortgage_rates.top.gif By Les Christie, staff writer

NEW YORK (CNNMoney.com) -- The era of near 4% mortgage rates has ended after a quick rate rise since early November. But some industry experts think that may be a good thing for the flagging housing market.

The average 30-year fixed mortgage rate has risen to 4.86% from 4.17%, according to Freddie Mac's weekly mortgage market survey. In the Bankrate.com weekly survey, the rate has risen to 5.02% -- crossing the 5% mark for the second time in three weeks -- after being as low as 4.42% as recently as early November.

Rates haven't been this high since May and forecasters now predict them to remain between 5% and 6% for all of 2011.

"You can kiss those record lows goodbye," said Greg McBride, chief economist for Bankrate.com.

Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.

"I don't think we're going back to a 50-year low anytime soon without an economic collapse," he said. "Rates will probably never revisit those levels."

The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power, according to McBride.

"That's nothing to sneeze at," he said. "But it's still small relative to the steep drop in home prices over the past few years."

Good for the market?

Higher interest rates may even prove stimulating to the still quiet housing market in which sales volume and prices are scraping near their bottoms.

"The initial phase of an interest rate increase generally does not hurt markets," said Lawrence Yun, chief economist for the National Association of Realtors. "In fact, it can help."

The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more.

The strength of the economic recovery will have far more impact on the housing market that this relatively modest increase in mortgage rates, according to Yun. If hiring gains momentum, housing markets should revive.

"If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume," said Yun.

Gumbinger said that demand for homes may be tempered somewhat by the increased mortgage costs and so affect home prices a bit but the improving job picture and better consumer confidence matter much more.

"If the other factors are aligned," he said, "interest rates are not a big thing."

The real mortgage challenge, according to Yun, is to increase the number of loan applicants winning approvals. Too many potential homebuyers are still finding it difficult to qualify for loans.

"The current mortgage market is a unique situation" he said. "It's less about rates than it is about underwriting standards, which are, in my opinion, still too stringent."

"If lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy." To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.44%3.46%
15 yr fixed2.72%2.73%
5/1 ARM2.98%2.95%
30 yr refi3.49%3.49%
15 yr refi2.72%2.75%
Rate data provided
by Bankrate.com
View rates in your area
Find personalized rates:
  • Find Homes for sale
    Real estate and homes for sale on Trulia

  • Property Type
  • Find a home in: New York | Atlanta | Chicago | Los Angeles
  • Washington D.C | Houston | Philadelphia | More options
Index Last Change % Change
Dow 18,181.05 -41.98 -0.23%
Nasdaq 5,288.82 -21.01 -0.40%
S&P 500 2,145.12 -6.21 -0.29%
Treasuries 1.75 -0.01 -0.68%
Data as of 11:57am ET
Company Price Change % Change
Under Armour Inc 32.55 -5.35 -14.12%
Freeport-McMoRan Inc... 10.57 0.39 3.83%
Chesapeake Energy Co... 6.26 -0.11 -1.65%
Bank of America Corp... 16.74 -0.03 -0.20%
Ford Motor Co 11.82 -0.22 -1.84%
Data as of 11:42am ET


Under Armour stock plunged 13% on Tuesday as the apparel maker warned profit growth will slow down due to turbulence in the North American market and the need to invest more heavily. More

Stocks are widely expected to drop close to 10% if Trump wins the presidency. But even if Clinton wins, stocks could still sell-off the day after the election. More

Jordan Belamire has been sexually assaulted three times. Twice in real life, and once in virtual reality. More

The University of Illinois partnered with Coursera to launch one of the most affordable online MBA programs yet. More