Late last year, when mortgage rates dipped to the low five per cent level, it seemed like a once in a lifetime opportunity for buyers to get in on a great home loan discount. Today’s (June 9) 5.56% national average interest rate on a 30-year fixed loan (according to bankrate.com) is likely disappointing to people shopping for a home, or those who missed the boat on a finance at less than five per cent.

Many lenders were posting rates as low as 4.625-4.75 per cent for 30-year fixed conventional loans just a few weeks ago. Since that point, the national average for these loans has climbed just under one per cent. While current rates are cheap by historic standards, it makes things a little more difficult for a real estate market looking to find its legs.

Recent real estate data has been promising. Existing home sales especially have been strong the last couple months. However, with unemployment spiking to 9.4 per cent according to the latest reports, it will be difficult for jobless Americans to afford to buy with rates on the rise.

The combination of mortgage rates that were below five per cent and home prices at all-time lows, made for some pretty sweet deals in many places across the country. The challenge for people looking to sell homes still remains an abundance of distressed homes and foreclosures.

Now, with mortgage rates gradually climbing back up, the hang up for real estate’s full recovery could be the more costly investment for buyers, not to mention the difficulty many will have any getting loans without a job.

So, will the patient be rewarded? It is certainly possible that mortgage rates could drop again. The Obama Administration and the Central Bank have both made it clear that they are willing to set policies and influence rates lower in order to help stimulate the real estate sector. If rates keep moving up and the economy needs a little more help, external influences might come into play.

The current trend in rates is definitely up, though. The Fed funds rate can’t go any lower with the Central Bank maintaining a zero per cent policy for the time being. At some point, though, as the economy picks up steam, the base rate will go back up. This will ultimately contribute to higher mortgage rates. Interest in mortgage-backed securities is sure to pick up if investors become more confident that the economy, and specifically credit and real estate, are stable and in recovery.

Americans considering buying now, and developers trying to decide whether to build, must in part make a judgment about the direction of finance costs. Unfortunately, many people that might be willing to buy at the current market prices (which are still falling), cannot afford or cannot get credit because they are out of work.

Neil Kokemuller
10:38 PM EST
Tuesday, June 9, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices .
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