Home mortgage interest rates have made their largest weekly increase in more than three years, rising more than a third of a percentage point, since Donald Trump’s election as president.
The average rate for a 30-year, fixed-rate mortgage surged to 3.94 percent this week from 3.57 percent a week earlier, the largest week-over-week increase since June 2013, mortgage giant Freddie Mac reported Thursday morning. At the start of the year, the average rate was 3.97 percent.
Interest rates are rising for a variety of reasons, including investors’ expectations of tax cuts and deficit spending under a Trump administration, said Len Kiefer, deputy chief economist at Freddie Mac. Even before the election, rates were starting to “creep up off their lows” due to strong job and economic reports, Kiefer said.
“Over a couple of years, we’ll probably see rates get above 5 percent, maybe 5 1⁄2 percent,” Kiefer said. But rates could be volatile, and could even drop back down, depending on factors such as inflation and what action the Federal Reserve takes on short-term rates, he said.
Fed Chair Janet Yellin on Thursday told Congress that an increase in short-term rates could be “appropriate relatively soon,” given an improving national economy. The Fed’s rate-setting committee will meet next month.
Long Island real estate agents and mortgage lenders said the recent rise could prompt home buyers to go ahead with purchases.
“You’re not going to wait because you’d rather get it at 4 [percent] rather than 4.5 [percent], so what happens is you’re going to pull the trigger on that purchase,” said Michael Gannon, a vice president at United Northern Mortgage Bankers in Levittown.
The promise of lower taxes once Trump takes office will spur the economy, which leads to higher rates, Gannon predicted.
Rising interest rates also could lead to slower growth in home prices, said Michael McHugh, a Melville-based senior vice president for retail lending at Freedom Mortgage and former chairman of the Empire State Mortgage Bankers Association.
Last month the median home price increased by 9.3 percent annually, to $470,000, in Nassau County, and by 3 percent year-over-year in Suffolk County, to nearly $340,000, the Multiple Listing Service of Long Island reported. Sales and inventory of homes fell in both counties.
Mortgage rates loosely track yields on 10-year Treasury bonds. Trump’s plans for rebuilding the nation’s infrastructure could involve deficit spending, which would increase borrowing costs, McHugh said.
Even so, McHugh said, “These are still extremely low rates in historical perspective. Could we deal with slightly higher interest rates? Of course we could.”
For a buyer taking out a $300,000 mortgage, the monthly cost of borrowing has increased by $63, to nearly $1,422, according to Bankrate.com’s online mortgage calculator. That adds up to nearly $22,700 over the 30-year life of the loan.
Some homeowners with adjustable-rate home equity loans or lines of credit might seek to refinance into fixed-rate mortgages before rates rise further, McHugh said. Some of those loans started off with 10 years of interest-only payments; as borrowers start having to pay down principal, monthly costs will increase, he said.
Long Islanders with home-equity lines of credit carried an average balance of $82,319 in September, up 26 percent from a decade ago, national data company CoreLogic reported. Nationally, the average balance was $51,600, 13 percent higher than 10 years ago.
The rise in interest rates creates anxiety for some buyers who are focused on keeping costs under control, said Annie Torres, an associate broker with Realty Connect USA in Hauppauge.
“They’re just saying, ‘Listen, Annie, I don’t want to go above $2,500’ ” in monthly mortgage payments, Torres said.
Torres expressed confidence that rates would come back down. Since 2012, mortgage rates have ranged from a low of 3.31 percent in November 2012 to a high of 4.58 percent in August 2013, Freddie Mac figures show.
The stock market, she noted, “went down tremendously right after the election, and then it went back up. We just have to see what happens.”