Will California Mortgage and Credit Card Rates Go Up Again?
When will this spike in mortgage and credit card interest rates end?
Maybe early next year. But not anytime soon, experts said Wednesday.
A new round of consumer interest rate increases is expected to occur as a result of the Federal Reserve’s recent strengthening of its key interest rate.
The Federal Reserve raised interest rates on Wednesday by another three-quarters of a percentage point, as inflation remains high. This is the fifth increase this year, and likely to be one or two in 2022.
So far, the increases have helped send mortgage interest rates to levels not seen since 2008, and credit card rates are on the rise.
With the recent increases, “it’s hard to imagine mortgage rates not rising to the 6.5% range,” said Jordan Levine, vice president and chief economist at the California Association of Realtors.
There is some daylight ahead. Jacob Channel, chief economist at LendingTree, an online lending marketplace, said the recent increase “doesn’t mean mortgage rates will follow suit” and continue to rise at the same pace as the Fed’s raise.
It is the law of supply and demand. The average mortgage rate last week was 6.02%, up from 2.86% a year ago.
If you borrow $300,000 on a 30-year fixed-rate loan, that means you’ll pay around $600 per month. The increase to 6.5% means about another $50 per month.
Consumers react. California home sales are down from a year ago and median prices are flat.
“Interest rates are going up, California housing markets are down,” said the UCLA Anderson Economic Outlook released on Wednesday.
Existing home sales statewide last month were down 24.4% from the same month last year, and by 22.1% in the Central Valley. The statewide average price rose 1.4% over that period, the smallest price increase in two years.
Lenders with prestige channels will not allow rates to rise much more if demand remains muted. Even at 6%, he said, “high demand evaporates.”
Barry Broome, president and CEO of the Great Sacramento Economic Council, said he believes inflation will ease when supply chains and labor markets strengthen.
With inflation soaring, Broome said, income is hardly moving. Prices nationwide rose at an annualized pace of 8.3% last month.
“Basically, everyone in America took a pay cut,” he said.
Credit card rates
Credit card rates also face the problem of supply and demand. The average interest rate is now 21.59%. A year ago it was 19.47%.
This means that a year ago, someone with $5,000 credit card debt made $250 a month. They paid interest of $985, and it took 24 months to pay the entire balance.
At current rates, with the same amount of debt, the same $250 a month would take an extra month to pay off. They will pay a total of $1,129 in interest.
Rates should continue to rise, said Matt Schulze, senior credit analyst at LendingTree.
“I think there is still a lot of upside before credit card rates peak. The Fed is clearly not quite ready to give up on gas just yet when it comes to raising rates, so cardholders should expect interest rates to continue to rise. Annual Percentage Rates (APRs) in the coming months.
But he had this cautiously optimistic note: “They won’t go up forever, in part because the market simply won’t bear it,” he said.
This story was originally published September 21, 2022 1:39 pm.