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"Mortgage rates showed little change this week after the Fed's tapering announcement. According to the finance mortgage provider Freddie Mac, the 30-year fixed mortgage rate rose slightly to 2.88% from 2.86% the previous week. Nevertheless, rates are expected to rise further as the Fed will likely start reducing its bond purchases before the end of the year and raise interest rates by the middle of next year. NAR forecasts the 30-year fixed mortgage rate to reach 3.5% by mid-2022.
Even with this increase, consumers should bear in mind that these rates will still be historically low. The historical average of the 30-year fixed mortgage rates is 8%. For example, even though rates will be nearly 60 basis points higher, the monthly mortgage payment will only rise by roughly $100 from these higher rates.
Meanwhile, we are seeing that millennial renters are twice as likely to be squeezed than their homeowner counterparts. Forty-three percent of millennial renters spend more than 30% of their income on their rent. However, only 20% of millennial homeowners spend more than 30% of their income on owing a home. Furthermore, these millennial homeowners have already accumulated more than $100,000 in equity due to price appreciation as they have owned their home for the last 5 years, on average. With mortgage rates near historical lows, more millennials may be able to become homeowners and start building wealth."
