Dallas Refinance: Don’t Sweat Rising Mortgage Refinance Rates

Dallas Refinance: Don’t Sweat Rising Mortgage Refinance Rates

http://finance.fortune.cnn.com/2011/02/15/dont-sweat-rising-mortgage-rates/

Will rising interest rates slam the door on a fragile housing recovery? No..though that only underscores just how grim the housing picture is.

The rate on the 30-year conforming mortgage has risen to a recent 5.1% from 4.2% last October tagging along behind an even larger rise in the yield on the 10-year Treasury note over that period. The jump in the mortgage rate has added around $50 to the monthly tab on a 30-year fixed-rate mortgage on a median-price house ($170,000 or so) purchased with 20% down, estimates Paul Dales of Capital Economics in Toronto.

Those figures could yet rise further in coming weeks. Many observers expect the yield on the 10-year Treasury rise to 4% or above from a recent 3.6%, amid questions about whether U.S. policymakers have the guts to rein in the galloping U.S. budget deficit. Higher Treasury rates generally translate into higher mortgage rates.

Yet houses are cheap enough that mortgage rates could even rise further without drastically damaging the affordability picture, Dales says. He figures they could rise another point or two without really darkening the affordability picture, which for the past few years has been practically the only bright spot in the housing market.

The recent increase in mortgage rates means buying the median house consumes 14% of median income – up from 13% at the October low. That’s barely half of the 25% of income Americans were ill-advisely funneling into house purchases at the top of the housing bubble.

He also expects low house prices to limit the fallout of higher costs that will result from the Obama administration’s makeover of the deeply troubled U.S. mortgage finance system. “Relatively low house prices mean that affordability remains very high by historical standards,” says Dales.

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