June 19th, 2013
The U.S. housing market has been on an extremely successful streak for months. Mortgage rates hit all-time lows in May, inspiring buyers across the country to go house hunting. Ever since, demand has become so high that the real estate supply is struggling to keep up. Now, mortgage rates are finally beginning to rise, but reports show this change is not deterring buyers.
According to Freddie Mac, by June 13, the interest rate on 30-year loans hit 3.98 percent. This is the highest the rate has been since April 2012, USA Today reported. In addition, the last time rates were at 4 percent was in March 2012. Many economists view the 4 percent mark as a significant line, since mortgage rates will then officially move out of the vicinity of the recent record-lows and leave the 3′s behind. The record low for 30-year loans is 3.35 percent, which was last seen November 2012.
The good news is that so far, the increase in mortgage rates is not having an effect on the success of the housing market. Although it is becoming more expensive to buy a house, doing so is still cheaper than renting. According to Forbes, mortgage rates can actually rise to 10.5 percent before renting will be the more affordable option. This means that even if the upward trend continues as expected, the housing market should be able to maintain its security.
How the tipping point varies by area
While 10.5 percent is a general figure for the country, each city has its own tipping point based on its market. In areas where housing is expensive, rates don’t have to get very high before it costs less to rent. On the other hand, in cheap housing markets, mortgage rates could reach pretty surprising heights – even above 10.5 percent, in some cases – and it would still be affordable to buy a home.
For instance, in San Jose, Calif., the tipping point would be 5.2 percent, The Wall Street Journal reported. This number may not be too far off, since experts predict rates will hit 4.6 percent by the end of 2014, according to Bloomberg Businessweek.
Detroit is an example of the opposite extreme, however. There, rates would have to skyrocket to 35.8 percent before it’s cheaper to rent than buy.
Overall, results will vary by area, and a mortgage consultant should be able to advise HR professionals on best practices for relocation as rates rise.