Growing concern over the course of the Iran War is causing bond yields to rise and mortgage rates to follow suit.
The average interest rate on the 30-year fixed loan rose 7 basis points to 6.75% on Tuesday, according to Mortgage News Daily. This is the highest level since July 31st. Rates have risen 33 basis points in the last 10 days alone and are 46 basis points above their recent April low of 6.29%.
This drop in April came after a sharp rise in interest rates at the start of the war, when the rate rose from 5.99% at the beginning of March to 6.64% at the end of the month.
“Bonds signal to politicians that they are serious about ending the war or face increasingly dire consequences,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.
The increase from 5.99% to now 6.75% is a significant change in the calculation of housing affordability. For a buyer who puts down a 20% down payment on a $420,000 home – about the same as the national average price of a home – his monthly principal and interest payment increased from $2,012 to $2,179, a difference of $167.
The country’s homebuilders are somewhat less sensitive to interest rate changes as builders have cut mortgage rates to attract buyers. Interest rates are still lower than they were a year ago, when they rose over 7%.
“Rates are a challenge,” John Lovallo, a homebuilding analyst at UBS, said in an interview Tuesday on CNBC’s “Squawk on the Street.” “But we are still at a level where construction companies can operate effectively. As quickly as interest rates have risen, they could fall just as quickly if this war comes to a resolution and the price of oil declines.”
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Lovallo said he viewed this as a buying opportunity for homebuilder stocks, noting that homebuilders would still see average order growth through the spring season.
“Demand for housing continues to be robust,” he said.
Sales of pending homes increased both month-over-month and year-over-year in April, according to a report from the National Association of Realtors on Tuesday.
“Buyers remain cautiously optimistic despite increasing economic uncertainty and a slight increase in mortgage rates,” Lawrence Yun, NAR chief economist, said in a news release. “Demand will easily be even higher as mortgage rates return to levels seen at the beginning of the year.”
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