rates are up

Interest Rates, Suicide and Pharmaceuticals Are All Up. What do they have in common?

In 2018, the housing market has continued to show strong signs of recovery, more than 10 years after the crash that devastated millions of families across the country. But as the US economy has been getting stronger, it means that the days of cheap gas, interest rates for houses at 3.5% and double-digit investment returns are probably behind us.

While this is good news in some ways, higher interest rates, home prices, higher consumer loan rates and gas prices can actually lead to higher economic stress for some Americans, and even suicide in the worst cases. The sale of pharmaceuticals has also risen, and more people are taking anti-anxiety and anti-depression drugs in the US than ever before. This is an indicator potentially that economic stresses from higher rates and prices are starting to cause Americans to feel more stress than in the past few years.

In recent months, the Federal Reserve has raised its benchmark interest rates several times. This means higher interest rates for auto loans, credit cards and mortgages. The 30-year fixed rate mortgage rate has gone up to a four year high with the latest rate at the 4.6% level. This is still very low, but it does mean that borrowers cannot afford to borrow as much as they once did. After man years of low inflation, Americans around the country are paying more for just about everything.

In fact, mortgage interest rates for 30-year loans have risen for 15 of the first 21 weeks in 2018, which is the biggest share since Freddie Mac started to track the data in the early 1970s. The relatively healthy economy and the potential of higher inflation and higher prices is increasing the yield on the 10-year Treasury bond to more than 3%, which always has a negative effect on interest rates for mortgages eventually.

The ¾ of a point increase in mortgage interest rates so far in 2018 have boosted the cost of a $200,000 mortgage about $85 per month. The higher costs can definitely lead to more stress for home buyers and home owners, and it is possible that the higher costs are causing sales to decline. Existing home sales fell last month by 2.5% to an annual rate of 5.46 million and were 1.5% below the level of 2017 at the same time. From January through April 2018, home sales have dropped 1% from the same time a year ago.

Some economists have blamed low housing supplies more than the rates, but there is no doubt that the higher prices and rates are causing more people economic stress even though the economy is better overall. There was a four-month supply of existing, built homes on the market as of April 2018. This is the time that it would take to sell the supply of homes at the current pace. The standard, more balanced amount of homes is actually a six-month supply.

Economists add that higher interest rates are probably discouraging some people from selling their current homes and buying bigger ones. The thinking is that if you have an interest rate at under 4%, why would you want to sell your home and get a new interest rate that is approaching 5%? In these cases, these home owners may decide to stay in their current home and do renovations instead.

Some experts do insist that mortgage rates have definitely caused home sales in the US to slow as more buyers are feeling stress from the higher costs of borrowing money, as well as the higher prices. According to an index of mortgage applications, there are 3.5% more than a year ago, but it is down 6% on a seasonally adjusted scale since the peak in December 2017. Mortgage applications always reflect the demand from home buyers and current rates and are not obstacles that might prevent some home buyers from buying a home, such as a low level of home supply and hot competition from other buyers. One expert noted that for every ½ point increase in mortgage rates, mortgage applications drop by 8%.

While it is good that the economy is doing better in terms of unemployment and growth, the higher interest rates can lead to more stress on consumers with higher borrowing costs, which can lead to more pharmaceutical use, and incidents of suicide in the worst cases.

 

 

References: https://www.usatoday.com/story/money/2018/05/24/mortgage-interest-rates-2018-7-year-high-home-sales/641263002/

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