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3/8/13

Low mortgage rates help young home buyers, elderly sellers


The persistently low mortgage rates that have supported the housing market’s recovery over the past year are also a vehicle for transferring wealth between generations, a recent Macro Man blog post points out. 
Record-high affordability, backed by low rates and home prices, has been enticing buyers, many of whom are relatively young.
“New home buyers tend to be predominantly young families, while sellers tend to be retirees,” the post says. Read the Macro Man post.
“As lower interest rates increase the present value of housing prices, new buyers increase leverage to purchase homes, and they take on larger debts to do so.”
Across the country, the average rate for a 30-year-fixed-rate mortgage is 3.52%, down almost four-tenths of a percentage point from the same period in the prior year, according to mortgage buyer Freddie Mac. The average rate for the 30-year-fixed-rate mortgage hit a record low of 3.31% in November. Read more about housing affordability.
Macro Man also warned about the danger of new-mortgage rates rising above rates for existing loans. Rates for new 30-year-fixed-rate mortgages have increased about 17 basis points this year, but remain below rates for existing mortgages.
“The U.S. has never survived an instance in the last 14 years where new mortgage rates exceed existing mortgage rates without the economy tipping into a recession,” the post says. “And that makes sense. Without increases in real income, mortgage rates which are no longer supportive to house prices ultimately result in declining expenditures.”

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