Don’t panic over rising interest rates

Q: Should I panic over rising interest rates?

A: No.

Mortgage rates zoomed in the last quarter of 2016, with the 30-year fixed ending the year at 4.32 percent. It rose more than three-quarters of a percentage point in the final three months of the year. Let’s put this in perspective.

■ Bankrate has surveyed mortgage rates every Wednesday since Sept. 25, 1985. The 30-year fixed was 12.31 percent that first week, and that’s the highest it’s been.

■ As far as I can tell, mortgage rates had never been under 4 percent until then. In an appendix to an obscure research paper from 1956, I found evidence that you could get a 4 percent mortgage in Chicago more than a century ago.

Why mortgages rose so much

Mortgage rates rose as part of a sell-off in bond markets. According to conventional wisdom, investors dumped their bonds after the presidential election because they believe that Donald Trump will raise infrastructure spending and cut taxes.

“With Trump getting in, that brings in a lot of inflation fears and uncertainty that causes rates to go up,” says Brian Koss, executive vice president of Mortgage Network.

When investors sold bonds, mortgage rates went up.

Those investors were jumping to conclusions. I’m not saying they’re wrong; I’m saying it’s too soon to know if they’re right.

What it means for housing

The law of supply and demand doesn’t have an iron grip on housing. A lot of people buy their first homes when they start families. No one checks house prices and mortgage rates when deciding whether and when to have children.

“The lead-up to the election had no impact on home sales or demand; pent-up demand, historically low mortgage rates, relatively strong job creation and significant demographic tail winds created the best real estate market in a decade,” says Jonathan Smoke, chief economist for Realtor.com.

Elizabeth Rose, branch manager for Movement Mortgage in Dallas, says: “I don’t think this is bad news for housing at all. We can look back on history and see that people buy houses no matter what the interest rates are.”

She acknowledges that mortgage rates might affect some people’s ability to buy. But determined homebuyers will simply choose smaller houses or longer commutes in exchange for lower house prices. A lot of buyers won’t even have to do that. Mortgage rates are in the 4 percent range.

That’s still low, and this rate increase doesn’t affect affordability much.