Mortgage rates have hovered around yearly lows for weeks. But with rate-hike forecasts looming, can buyers count on borrowing costs to stay low? 
Many economists are now predicting the average 30-year fixed-rate mortgage to reach 5 percent by the middle of the next year, The New York Times reports. On Friday, Freddie Mac reported 30 year fixed rate mortgage averaging 4.20 percent. The hike in rates is partially due to the Federal Reserve’s plan to withdraw from buying mortgage-backed securities.
Economists note that while 5 percent mortgage rates are low by historical standards, such an increase still has the potential of reducing buying power in a home purchase. For example: According to some estimates, a 1 percent increase in interest rates can raise a monthly mortgage payment on a typical home by more than $700 in pricier parts of the country. The increase would likely be much more modest in other, less expensive markets.
But even in the case of rate hikes up to 7 percent, the analysis found that homes remain affordable overall. From 1985 to 2000, home owners’ housing costs—including the principal and interest on a median-priced home—accounted for 22 percent of a home owners’ median household income. However, for comparison, today’s households are spending about 15 percent of their median income on a median-priced home.
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Source: New York Times 09/25/2014
