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Lower rates have also inspired a refinancing boom over the past two years. Many homeowners have locked in rates below 4 percent. That has lowered their monthly payments, leaving them with more cash to spend elsewhere and fuel more economic growth.
The average rate on a 15-year fixed mortgage, a popular refinancing instrument, soared this week to 3.50 percent – its highest point since August 2011 – from 3.04 percent last week.
A report this week suggested that the economy might not be as strong as some had thought. The government cut its growth estimate for the January-March quarter to an annual rate of just 1.8 percent – much lower than the 2.4 percent rate it estimated a month ago.
A key reason for the downgrade was that consumers spent less than previously thought. Less spending has led some economists to predict that growth will stay weak through the summer and fall short of the Fed’s more optimistic forecast of 2.3 to 2.6 percent growth for all of 2013.
The downgrade for economic growth has cast some doubt on the likelihood that the Fed will reduce its stimulus later this year. Several Fed voting members have stressed in recent days that Bernanke’s comments made clear that any pullback in bond purchases would hinge on the economy’s performance, not a calendar date.
Those reassurances and solid, if not spectacular, economic data have helped boost stocks in recent days and reverse a jump in long-term interest rates. The yield on the 10-year Treasury note fell Thursday to 2.47 percent, down from its two-year high of 2.66 percent on Monday.
Geraci says he doesn’t think higher mortgage rates will hurt a housing market in which there aren’t nearly enough available homes in many areas.
“So buyers that find a nice home, no matter what the rates are, are going to move on it,” Geraci said. “If there’s enough supply, people might sit and wait a little bit and see if the rates come down.”
Rising rates motivated Alex Backus to act two weeks ago and sign a contract on a $365,000 three-bedroom house in the Seattle suburb of Edmonds, Wash.
Backus, 30, had searched listings for two months before signing the contract. He locked in a 30-year loan at a fixed rate of 4.125 percent.
“Seeing that interest rates were starting to come back up, it seemed like now was the time to really start to get serious about buying a home,” said Backus, an aerospace engineer.
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