Mortgage rates on 30-year fixed loans moved above 5% this week, according to a Freddie Mac report, up from 4.81% last week, reaching the highest level since April 2010. The home market is already up against a number of challenges -- and now mortgage rates may be among them.
Research firm RealtyTrac recently reported that foreclosures remain stubbornly high. Standard & Poor's has forecast home prices could drop another 7% to 10% this this year. If that is so, the value of homes in many areas will have dropped over 50% from the 2006 peak. Hard hit states like Nevada may have experienced drops closer to 70% over the same period.
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Home mortgage rates are still near historic lows, so buyers may decide to purchase houses before interest rates get much higher. But many people in the market will assume rates will drop again and make housing more affordable. The slight upward tick in inflation will make that scenario less likely.
The federal government still has not come up with a nationwide solution to the housing problem. The Home Affordable Modification Program (HAMP) has been a failure. The only plan that was a success, the home buyer tax credit, expired last April. Without a new tax credit from the Obama Administration and Congress, higher mortgage rates will be the straw that broke the camel's back.