Mortgage Rates Surge, But Buying Still Beats Renting

Rates for 30-year mortgages continue to rise, having seen 12-month highs for the last several weeks and counting, and driving home buyers to consider whether now’s the right time to take action.

The average rate for a 30-year fixed-rate mortgage reached 3.87% the first week of June, up 16 basis points from the week prior, according to Zillow Mortgage Marketplace. That rate hovered between 3.75% and 3.86% over the course of the week marking what Zillow has deemed a “surge” over rates seen in the previous month and throughout the last 12 months.

Rates continued to rise, reaching a most recent high of 3.98%.

Analysts and economists have taken the rising level to mean the Federal Reserve may shift its policy away from its current efforts to keep rates low.

“Rates stayed near 12 month highs, reflecting expectations for a winding down of Fed stimulus,” said Erin Lantz, director of Zillow Mortgage Marketplace.

The initial response to the increase was a decline in mortgage applications, according to the Mortgage Bankers Association. Applications fell 11.5% by MBA’s June 5 measure, showing buyers were spooked by the news.

Buying still better than renting

While rates hovering around the 4% mark make buying a home today slightly more costly than in months past, the rates are still relatively low, says a recent Trulia report. In fact, on average, buying a home will be cheaper than renting until rates hit 10.5%, according to Trulia’s analysis.

The “tipping point” for renting versus buying, however, varies widely by geographic region, Trulia says. San Jose, for example, has a tipping point of 5.2% while in San Diego that tipping point is 7.5%.

“At 3.9%, buying is cheaper than renting in all of the 100 largest metros, which means the tipping point is above 3.9% everywhere,” writes Trulia’s chief economist Jed Kolko.

The recent uptick from 3.4% to 3.9% would translate into an extra $56 per monthly mortgage payment for a $200,000 30-year fixed rate mortgage, Trulia says.

Is now time to buy?

The uptick in rates signals the economy is getting stronger, and has taken place at the same time home prices have risen in many metro areas. While it’s unlikely rates will rise to 10.5% in the short term, the rent-versus-buy analysis indicates buying is a better decision than renting in every major metro area. Acting while rates are still at relative historic lows will save thousands of dollars in interest over time.

Refinancing may also be a viable alternative if you already own a home with a mortgage at a higher rate than what’s available today. Government programs are available for certain qualifying homeowners, including the Home Affordable Modification Program, which was recently extended by the Obama Administration.

There are many guesses as to when rates will rise, or if the current surge will continue. Due to future uncertainty and rates that still remain very low relative to historic levels, buying today may be less expensive than it will be once rates to see a more sustained uptick.

If you have a question about qualifying for a new mortgage under today’s low rates, or if you are considering refinancing an existing loan, contact us for more information. 

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