Mortgage rates rose for the third straight week, with 30-year, fixed-rate home loans averaging 3.66 percent, according to Freddie Mac. A year ago, a typical loan was 3.87 percent.
Home loans are getting more expensive as the economy slowly gains strength and Federal Reserve policymakers hint that they might increase their own short-term rates. The Fed doesn’t control mortgages, but what it does can affect them.
Fed Chair Janet Yellen surprised the markets last week when she said a central bank rate hike might be in order sooner rather than later.
“It’s appropriate for the Fed to gradually and cautiously increase our overnight interest rate,” Yellen said in remarks at Harvard. “In coming months such a move would be appropriate.”
She also said raising rates too quickly could trigger a downturn. “We should be cautious about raising rates too steeply.”
Translation: Any increase in interest rates will be gradual and won’t shock the system. When the Fed last raised rates in December, home loans actually got cheaper as investors sought a safe haven for their money amid global economic uncertainty. Yellen & Co. meet again June 14-15.
“The American economy can withstand slightly higher rates,” TD Economics wrote in a note to clients. “Though the path will be slow, rates are going up because the American economy is on surer footing.”
The U.S. housing market can withstand higher rates, too. Home loans have held below 4 percent all year, which has been a boon to both buyers and sellers.
Unfortunately, not everyone has been able to take advantage of that cheap borrowing. Six years after the subprime credit collapse, it’s still difficult or impossible for some average homebuyers to get a mortgage. Credit standards on home loans tightened in May for the third-straight month, according to the Mortgage Bankers Association.
