Rates Moderate, For Now

After surging in the wake of the election, mortgage rates are back on the decline. The average rate for a 30-year fixed rate mortgage was 3.97 percent for three-day period ending April 19th according a release from Freddie Mac this morning. Lower rates should help consumers currently in the market, but rates are still expected to rise through the year.

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The recent decline in rates was driven by a movement of money out of stocks and into bonds. This shift was initially driven by a realization that tax reform and other pro-growth policies might take longer to implement than expected. Then an increase in international tensions drove investors further towards bonds as a safe haven.

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The most recent reading is 35 basis points lower than the post-election peak of 4.32 percent from the last week in December. That decline translates into a $40 reduction in the monthly payment on a $200,000 mortgage. While this is an improvement, it remains $51 higher than the monthly payment at 3.52 percent, the rate recorded just before the election.

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While higher rates will weigh on affordability, they are not necessarily a bad thing if they are the result of a stronger economy and if they bring stronger income growth as a result. Income growth can offset rising rates, stabilize household balance sheets, and drive growth. NAR is forecasting the average rate for a 30-year fixed rate mortgage to finish 2017 near 4.6 percent before rising to an average of 5.0 percent in 2017.

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