Household budgets: New buyers face rising loan costs

The home market clearly is on the rebound and inventories in many Puget Sound neighborhoods remain low.

Mortgage rates have hovered around yearly lows for weeks. But with rate-hike forecasts looming, can buyers count on borrowing costs to stay low?

Many economists are now predicting the average 30-year fixed-rate mortgage to reach 5 percent by the middle of the next year, The New York Times reported. Freddie Mac recently reported the 30-year fixed-rate mortgage averaged 4.20 percent. The hike in rate is partially due to the Federal Reserve’s plan to withdraw from buying mortgage-backed securities.

Economists note that while a 5 percent mortgage rate is low by historical standards, such an increase still has the potential of reducing buying power in a home purchase.

For example: According to some estimates, a 1 percent increase in interest rates can raise a monthly mortgage payment on a typical home by more than $700 in pricier parts of the country. The increase would likely be much more modest in other, less expensive markets.