Higher Rates Seen as No Big Deal

Although any run up in interest rates will have a profound effect on homebuyers at the margin, the nation's largest secondary mortgage market outlets don't think higher loan rates will have a big impact on mainstream buyers.Speaking at the MBA's National Secondary Market Conference, Freddie Mac's Paul Peterson said that mortgage rates have been in the 8%-9% range on average since 1971. There's "still plenty of room for a significant increase in interest rates without a huge impact" on the market, he said. Ginnie Mae President Ronald Rosenfeld agreed, offering that housing is not in jeopardy because it is "a huge part of the nation's social fabric" and "something practically all families strive for." Fannie Mae's Vice Chair, Daniel Mudd, said rising rates that are driven by a strong economy "can be managed." But he said an increase caused by a shock to the economy such as an oil crisis presents "a very difficult picture." Raymond Christman, president and CEO of the Federal Home Loan Bank of Atlanta, said the folks feeling the pinch of higher rates the most will be lower income buyers who will either have to remove themselves from the market or focus on lower cost alternatives. "What worries me most is basic affordability," Mr. Christman said. "If interest rates grow by 200-250 basis points, it will add 30% annually to the principal and interest payments on a $200,000 house."