Every gift might bare a hidden burden. And while most people thought that the federal government’s decision to stimulate the economy by cutting taxes and raising spending was a wise decision, this is the Devil in disguise, actually. Or, if you prefer, the reason why mortgage rates are going up in the US.
The Federal Reserve might be forced to raise borrowing costs, therefore putting a stop to the high consumer demand that could trash the whole economy. The average US 30-year fixed rate rose to 4.33% in February from a 3.85% in late 2017. Therefore, these higher mortgage rates are taking away buying power, bounding homebuyers to think twice before making any acquisition.
And when we can certainly claim that the housing market is already trying to figure out how to deal with a supply crisis, it’s easy to guess that increased mortgage rates won’t do any good to help the cause. The demand is strongly higher than the supply of homes for sale, and this issue will not go away, as people used to the below 4% mortgage rates will not give those rates up, either to downsize or upsize to a new home.
Obviously, the problem does not apply to Hollywood-type of houses but mainly targets first-time buyers, who are looking for affordable places to live in. High levels of student debt and high rent rates have influenced the way people are saving money, so a mortgage rate that is going up, even with a little bit, is trashing down dreams of buying a house.
Bottom line, the lower end of the housing market is affected by the still growing mortgage rates and people can’t afford them, even if the wages are going up. And that’s because the connection between wages and mortgage rates is unstoppable – if one goes up, the other follows.