Mortgage rates have risen fairly consistently in 2011, with the average rate on a 30-year fixed rate loan now up to 5.0 percent, according to a survey from Freddie Mac last week. And that rising pattern is likely to continue, most analysts say. We may not see lows like the 4.17 percent rate in November for some time to come. But higher rates may not have much impact on the housing market anyway, as home prices remain historically very affordable.
As of December 2010, the national median home price for existing homes was just $168,800, which means that a 30-year fixed rate mortgage with a 20 percent down payment and a 5 percent interest rate would carry payments of about $725 a month. That’s roughly $50 more than it was when rates were near the bottom, but still very reasonable compared with prices during the housing boom.
The problem, however, is not interest rates nor is it affordability. Cheap houses are great, but according to Colin Barr of CNNMoney.com
“that doesn’t mean a housing recovery is anywhere in sight. Few Americans have either the means or the inclination to plunk down $34,000 for a down payment on a house now, regardless of how reasonable the monthly payment might be.”
A couple of other factors loom over the housing market right now as well. Home prices continue their descent, as the latest S&P Case Shiller survey showed that 17 of the country’s 20 largest metro areas experienced a decline in home prices in November 2010. With plenty of foreclosures set to enter the market within the coming months, those prices could erode even further. Now as the government starts to pull back support from Fannie Mae and Freddie Mac, tight lending standards may hamper even more potential buyers from entering the market.
By some estimates, a true housing recovery may be months, if not a year, away.