Spike in Interest Rates Could Choke Recovery
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Rising long-term interest rates are making it more expensive for home buyers, corporations and the U.S. government to borrow money, threatening to further stifle an already weak economy.
In just the past two weeks, the rate on a 30-year, fixed-rate mortgage has risen to 5.6 percent from 4.9 percent, ending a boom in refinancing and working against a budding recovery in the housing market. Rates on corporate borrowing have also risen, making it more expensive for companies to expand. And the government has been forced to pay more to finance its deficit.
“Households really have no capacity to afford higher rates at this point,” said Scott Anderson, a senior economist at Wells Fargo. “It affects the cost of any long-term borrowing a consumer or business might do, whether it’s auto loans, mortgages or business credit.”
So far, home-purchase activity has been relatively stable, according to a range of indicators. But if the higher mortgage rates persist, it could put a damper on a fragile housing market. Home sales have stabilized in the past few months, though at a very low level, spurred in part by lower rates.
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