A historic row house in the Columbia Heights district of Washington, DC
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One strategist told CNBC why he still thinks borrowing money, including mortgages, is a “relatively good environment” despite rising interest rates.
Invesco’s chief global market strategist, Kristina Hooper, told CNBC’s Squawk Box Europe on Friday that borrowers may have experienced “plucking” when they saw mortgage rates rise by about 2%, but are optimistic. He said there was still a reason to be targeted.
“We live in a very low interest rate environment, and when the Fed finishes its tightening cycle, I think we’re still in a very low interest rate environment compared to history,” she said. ..
To demonstrate this, Hooper recalled her own experience of purchasing a “starter home” with her husband as a newlyweds in 1996.
She said the bank lenders they met gave them a plastic mortgage calculator. This was essentially a “sliding scale” showing the amount of repayment for every $ 1,000 borrowed according to interest rates. The scale was run from 6% to 20%. Hooper said this reflects the range of interest rates over the last few decades.
“I kept it because it was a trace of the past and reminded me of history,” Hooper said, adding that her parents had a mortgage rate of 13% in 1981.
At the same time, Hooper acknowledged that rising debt levels could make this cycle of rising interest rates more perceived by some. The Federal Reserve raises interest rates by 0.5 percentage points At the beginning of May, we pushed the federal funds rate up to 0.75% to 1%.
Data released by Experian In April, it was shown in the third quarter of 2021 that overall US debt levels reached $ 15.3 trillion, up 5.4% year-on-year. Mortgage debt increased 7.6% in the third quarter of 2021 to $ 10.3 trillion, up from $ 9.6 trillion in 2020.
“Fortunately for those with great fixed rates, they don’t have the mortgage products they had before the global financial crisis, where a reset will take place a few years later,” said Hooper. We couldn’t do a lot of people. We can afford their mortgages. “
“That’s certainly good news, but for those who fluctuate rates, for those who are still there, the rates are much higher, but it’s not much more affordable,” she adds. rice field.
The Mortgage Bankers Association’s seasonally adjusted index showed that in April. Demand for floating rate mortgages (ARM) has doubled From 3 months ago to 9%.
ARM tends to offer lower interest rates, but is considered to be slightly more risky than a 30-year fixed rate mortgage. ARM can be modified over a period of 5, 7, or 10 years, but will be adjusted when the period reaches the current market rate.
— — CNBC’s Diana Olick contributed to this report.
Correction: This story has been updated to correct a misspelling named Columbia Heights in the photo caption.