It's starting to look like more than just a temporary blip. On June 13, mortgage finance company Freddie Mac announced that mortgage rates rose for the sixth consecutive week -- and the impact on mortgage activity is already starting to be felt.
Mortgage Rates on the March
Freddie Mac reported that over the week ending on June 13, 30-year mortgage rates rose by seven basis points to 3.98 percent. Seven basis points one way or the other won't have much of an impact on the mortgage market, but this was the sixth straight weekly increase, a stretch that has pushed 30-year rates from 3.35 percent to 3.98 percent. Fifteen-year fixed mortgage rates and ARM rates have also risen, though not by as much as 30-year rates.
Impact on Activity
These across-the-board increases in mortgage rates have already begun to affect mortgage activity. During approximately the same period over which mortgage rates have been rising, mortgage application activity has declined in four out of six weeks.
Mortgage rates are still low enough that current activity levels may include people who are rushing to get their applications in before rates rise too much further. If rates do continue to climb, though, it could start to discourage new applicants. Refinancing activity could be expected to suffer the most from a continued rise in rates, as the pool of people remaining with original mortgages at higher rates becomes smaller and smaller.
If rising rates are already starting to impact the mortgage market, the next shock may be felt in housing prices. Housing prices have had a nice run over the past year, but a sharp rise in mortgage rates will make this difficult to sustain.
To assess the possible impact on housing prices, all you have to do is run some different scenarios through a mortgage payment calculator. Imagine using that loan calculator to target a certain monthly payment: As interest rates rise, the loan amount has to come down in order to maintain the same monthly payment.
Barring a sudden acceleration of economic growth that lifts the wealth of would-be home buyers, this simple exercise on a loan calculator illustrates how even the 63-basis-point rise in mortgage rates that's already occurred could suppress housing prices.