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Mortgage costs building up

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami.

It hasn’t gotten this consistently more expensive to borrow money to buy a house since the early 1970s.

Certainly, mortgage rates were higher four and half decades ago, but the march higher this year rivals the steady increases back then. Freddie Mac finds home borrowing rates have risen 16 of the past 22 weeks.

While the average 30-year fixed rate mortgage dipped slightly in the past week, the trend bears watching for investors in the week ahead. Already this year, the drive higher means borrowing money to buy an average priced home in America now costs $20,000 more over the lifetime of the loan compared to borrowing that money in January.

As mortgage rates have risen, the stocks of homebuilders have fallen. Shares of Lennar, KB Home and Toll Brothers are down about 20 percent each since the beginning of the year.

Few veteran homeowners will complain about a 4.5 percent mortgage rate. That’s still cheaper than borrowing costs just 10 years ago. But there are plenty of indicators borrowing costs will continue rising.

First, the Federal Reserve plans on continuing to hike its interest rate. In the minutes for its May meeting, the policymakers “expected that economic conditions would evolve in a manner that would warrant further gradual increases” in its short-term interest rate. Second, persistent worries about inflation, and its corrosive effect on bond investments, have helped push market interest rates higher. Third is the increasing supply of bonds for sale. President Donald Trump’s tax cut and government spending plans are leading the federal government to increase long-term borrowing while the Federal Reserve is selling bonds it bought during and after the Great Recession to help goose the economy.

As mortgage costs increase, home price increases are expected to slow down. Freddie Mac predicts home prices to jump 7 percent this year before cooling off considerably next to less than half that rate.

That slowdown may threaten the wealth effect many homeowners feel, and the economic confidence it fuels.

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView.