As investors begin to show signs of nervousness about backing government debt, historically low mortgage rates could feel the impact, further curbing South Florida’s shaky low-end market pickup.
“Essentially, we’re seeing more and more aversion to taking on longer term mortgage risk,” said Michael Larson, an interest rate and real estate analyst with Jupiter-based Weiss Research.
Larson predicts that rates will continue to creep past 5.5 percent within a few months. The higher rates equate to more of a U-shaped housing recovery, Larson said. “I don’t think this will be like 1982 when we had double-digit rates,” he said. “But the rates will get higher, and that will be a problem for a housing market that is still weak.”
Investors buying bonds guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae want a higher return for financing government debt because of several factors. A federal budget deficit of nearly $2 trillion, with other huge deficits to come, is believed to be inflationary, and investors demand higher interest rates to compensate for the inflation risk, Larson said.
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