Mortgage Rates Are Still Dirt Cheap

Mortgage rates have skyrocketed over the past few months. Just one week ago, they set a record for the largest single-day increase in history, leading industry experts such as Matthew Graham, chief operating officer of Mortgage News Daily, to characterize it as a "catastrophic surge."

The impact on the mortgage market can't be denied. At the end of last week, the nation's largest mortgage originator, Wells Fargo (NYSE: WFC  ) , reported that its mortgage refinancing volume had fallen by 23% in the second quarter compared with the same time period last year. And industrywide, data from the Mortgage Bankers Association estimates that the same figure is down by more than 50% since peaking seven months ago.

But what does this mean for prospective homebuyers? In a word: nothing, or at least, much less than one would instinctively conclude.

Even though mortgage rates have vaulted higher, the monthly payments on a $250,000 30-year fixed-rate mortgage remain historically low. At today's rates -- roughly 4.5% -- the monthly payment would be an estimated $1,266. That's 34% smaller than the average since 1976. In other words, mortgage rates are still dirt cheap. For an additional take, click here.

The low rates have been an important boost to homebuilders. At the end of May, the nation's largest builder of luxury homes, Toll Brothers (NYSE: TOL  ) , announced that it sold 38% more units in the three months ended April 30 than it did in the same quarter last year. That news was followed up last month by the third-largest builder, Lennar (NYSE: LEN  ) , which reported that its quarterly deliveries shot up by 39% on a year-over-year basis.

This has also been good for the market overall. On Friday, the S&P 500 (SNPINDEX: ^GSPC  ) closed at a new all-time high of 1,680. How much of the boost is attributable to the housing recovery? While it's hard to pinpoint the precise impact, the one thing we do know, as my colleague Morgan Housel recounts, is that "it's important enough that there hasn't been a strong economy without a strong housing market in modern history."

In sum, while many prospective homeowners may have missed the opportunity to buy a house when mortgage rates were lower than they've ever been before, it's important to remember that, the past few months aside, they're still at historical lows. Thus, if you're inclined to buy a house, now is as good as time as ever to go ahead and do so.

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