Higher US Interest Rates Soon To Hit Housing / Credit Cards / Cars
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Consumers are about to face a new financial burden: a sustained period of rising interest rates …
The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing …
Consumers are about to face a new financial burden: a sustained period of rising interest rates …
Consumers are about to face a new financial burden: a sustained period of rising interest rates …
The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing …
Consumers are about to face a new financial burden: a sustained period of rising interest rates …
The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing …
The run-up in rates is quickening as investors steer more of their money away from bonds
and as Washington unplugs the economic life support programs that kept rates low through the financial crisis. [br]
Mortgage rates and car loans are linked to the yield on long-term bonds.
The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump.
The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer, according to this article in the New York Times.
The Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.
“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”
Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.
Another area in which higher rates are likely to affect consumers is credit card use.
Last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001.
That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 —
a jump that amounts to about $200 a year in additional interest payments for the typical American household.[br]
With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall …
Washington, too, is expecting to have to pay more to borrow the money it needs for programs.
The Office of Management and Budget expects the rate on the benchmark 10-year United States Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012 …
Total household debt is now nine times what it was in 1981 — rising twice as fast as disposable income over the same period —
yet the portion of disposable income that goes toward covering that debt has budged only slightly, increasing to 12.6 percent from 10.7 percent.
Household debt has been dropping for the last two years as recession-battered consumers cut back on borrowing, but at $13.5 trillion, it still exceeds disposable income by $2.5 trillion.
The long decline in rates also helped prop up the stock market; lower rates for investments like bonds make stocks more attractive.
