Consumers still waiting for home loan rates to hit rock bottom may have missed an opportunity.
After hitting record lows in February, the average rate for 30-year mortgages climbed above four percent in March, a first since October 2011. Most economists believe that rates will continue to increase gradually as the housing market and economy recovers.
Freddie Mac expects 30-year rates to reach 4.5 percent this year and five percent by 2013 from an average of less than four percent last week.
The higher rates translate to higher monthly payments for both home buyers applying for new loans and refinancing homeowners.
However, the higher rates may dampen demand for housing and limit the recovery of the sector, while also reducing the cash amount that homeowners can spend on other expenses such as clothes and restaurants.
At the same time, rising consumer confidence, falling unemployment and the booming stock market should encourage people to spend more and buy homes, offsetting the impact of higher mortgage rates, according to economists and mortgage executives.
Frank Nothaft, Chief Economist of Freddie Mac, said, “Things are feeling better. Higher rates will have a little bit of an impact on housing demand, but that will more than be offset by the strengthening economy.”
By historical standards, rates have remained surprisingly low despite the increase.
“Rates are still extremely low,” said Matt Vernon, a mortgage executive at Bank of America Corp.
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