The New York Times reports that given the economic circumstances, interest rates have nowhere to go but up. Economists say that this is the inevitable result of:
- Ballooning national debt
- Prospective inflation renewal
- And recovery from the recession
The housing market will likely be the first area to see the increase. Additionally, the Federal Reserve has halted its $125 trillion mortgage debt program which just adds to pressure to raise interest rates. The MBA (Mortgage Bankers Association) expects rates to reach 5.5 by summer and 6 by the end of the year. Just a one point increase can raise the price of a home by up to 19%.
“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”
Mortgages won’t be the only thing to see increased rates. Credit Cards have already begun to rise–the Fed reported in February that the national credit card interest rate average is 14.26%, the highest since 2001. Likewise, car loans have seen an increase in about 1.5% since December.
“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”
The question isn’t so much WILL the rates go up, but rather WHEN? And HOW MUCH?
Interest rates and housing prices are still presently quite low as it stands. It is the perfect opportunity for homebuyers to act on the many opportunities available to homebuyers. You may be interested in jumping on the path to homeownership or seeing if you may qualify for an FHA loan.
