Mortgage rates rose this week, averaging 3.50 percent for a 30-year, fixed-rate loan, up from 3.44 percent last week. Last year at this time, rates were 3.91, according to Freddie Mac.
But the real news for homeowners and homebuyers came on Tuesday, when the Census Bureau released its annual report on Income and Poverty in the United States.
In an unambiguously positive turn, the median household income shot up 5.2 percent in 2015. It’s the largest annual gain in income since the report was founded in 1967.
Why Are Rising Incomes Good for the Housing Market?
Home prices have gone up every month since March 2012, according to the Redfin Real-Time Market Tracker. But until now there’s been scant news to demonstrate that the broader economy supported these price increases.
“Tuesday’s report suggests that the run up in home prices and sales growth has legs and will persist into 2017,” said Redfin chief economist Nela Richardson. “Income growth is a fundamental driver of buyer demand. Up until 2015, the housing recovery occurred without any upward movement in median household incomes.”
In other words, historically low mortgage rates meant homebuyers could buy more home – or afford to pay more for the same sized home.
“Tuesday’s news tells us that the rebound in housing is not as dependent on mortgage rates anymore. Another driver of homebuyer demand, income growth, has returned. That’s a strong signal of the persistence of the housing recovery,” said Richardson.
What About Mortgage Rates?
Yes, mortgage rates are the highest they’ve been since June, but, historically speaking, the rate is still extremely favorable for borrowers.
And, even as the economy is recovering, it looks like they’ll remain historically low for the foreseeable future. This coming Wednesday, Janet Yellen and crew (a group also known as the Federal Open Market Committee, or FOMC) will discuss whether they’ll raise the Federal funds rate.
The consensus is that the economy’s still not strong enough to sustain a rate hike. Silly as it sounds, even just thinking about the possibility had consequences: Last Friday, the S&P 500 dropped 2.5 percent, the largest drop since Brexit, based on investors’ speculation that rates might be raised.
Then, on Monday, Fed Governor Lael Brainard said she didn’t think a rate hike was warranted and the CME Group, which has a FedWatch tool that actively projects the probability of a rate hike, showed a significant drop for a September hike. It’s now at a relatively low 12 percent, as of publication of this article.
In other words, homebuyers should enjoy cheap borrowing for at least the next few months.