With interest rates rising - marked notably by the 25 basis point hike in Fed funds last week - market participants are concerned about the impact on homeowners, especially as consumer debt has increased substantially through the last recession. There are mixed views on the issue. Some analysts have said that borrowers are going to be more adversely affected this time around, while others believe that the so-called fragility of the consumer is merely a myth.
In a recent report, UBS noted that many economists believe the recent period of low mortgage rates was unmistakably beneficial to homeowners. However, as rates rise, this becomes a short-lived benefit for many, as housing turnover accounts for roughly 6% to 8% CPR per year. With rising rates, it will be more expensive for existing homeowners to move for job relocation or other reasons, as they will have to give up a low rate to make the move. Furthermore, if rates rise sharply, this could have a significant impact on turnover rates.