Mortgage rates may be going up, but that doesn’t necessarily mean that the housing boom is about to burst.
For the third consecutive week, mortgage rates have surpassed 3%, with the average 30-year fixed loan reaching a 3.09% high in nine months last week, according to Freddie Mac. The increase is being driven by an increase in the 10-year Treasury yield, which is closely linked to consumer loans such as mortgages, credit cards and auto loans.
The rise in mortgage rates typically signals a recovery in the economy and, despite mortgage orders falling week after week, Lending Tree chief economist Tendayi Kapfidze told Yahoo Finance Live that rates are still “very favorable” for buying houses.
“If you look at the past 10 years, mortgage rates are still below 95% of the time, and for the past 30 to 40 years, they are below 99% of the time,” said Kapfidze.
The biggest challenge for the housing market remains low inventory, and last year’s rush to refinance only adds to the problem, he said. The National Association of Realtors said on Monday that the stock hit a record low of 1.03 million units in February, down 29.5% from the previous year – the biggest annual drop ever .
“Last year’s refinancing boom, where many people stuck at much lower rates, will actually create more inventory challenges because fewer people will be willing to move out of their homes because they have obtained these historically low rates on their current mortgages,” he said.
As a general rule, refinancing makes sense if you are able to reduce a full percentage point of your current mortgage rate. But there are other factors to consider – including the terms of the loan, closing costs and how long you plan to stay at home.
If your refinancing saves $ 100 a month, but you pay $ 3,000 in closing costs, it will take 30 months just to break even. If you are not planning to stay in your home for that long, Kapfidze said it may not be the time to refinance.
The scarcity of supplies of materials such as sawn wood is also reducing inventories. Wood prices have risen about 200% from last year, which is adding about $ 24,000 to the price of a new home, according to the National Association of Home Builders.
While rising raw material costs may make it difficult for potential buyers to purchase, the recent rapid rise in mortgage rates is expected to stabilize. Kapfidze believes that rates will increase more modestly throughout the year.
To get the best rate, he recommends using an online mortgage calculator to estimate your monthly payments.
Don’t forget to add closing costs like insurance, taxes and assessment fees, and shop around. Kapfidze recommends talking to at least three to five creditors before closing a fee.
Your general advice? Try not to time the market and, if the numbers make sense, seize the opportunity.
“Participate in the market as it is presented to you,” he said. “You can have a lot of trouble trying to define where the rates will be. Look at the market today, find out if you can benefit today and act if necessary ”.
Alexis Christoforous is an anchor at Yahoo Finance. Follow her on twitter @AlexisTVNews.