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August 27th, 2013

How are rising mortgage rates affecting home sales?



While mortgage rates have risen appreciable over the last few months and rose somewhat dramatically last week, higher mortgage rates are nothing new. In fact, in the grand scheme of things, mortgage rates are still historically low.

Nothing wrong with 5 percent rates

That said, there is nothing wrong with a 30-year fixed-rate mortgage at 5 percent or thereabouts. In fact, before the Fed began directly manipulating the mortgage market in 2008, the lowest conforming 30-year fixed-rate mortgage we “naturally” achieved was 5.24 percent back in June 2003 … a 37-year low at the time.

Existing-home sales

Of course, we are also well aware that headlines last week also told that existing home sales rose by 6.5 percent to a 5.39 million (annualized) pace.

Wait, mortgage rates are rising AND home sales are rising, too? Not exactly.

Sales of existing homes are recorded when the process is completed, and may better reflect applications and contracts placed some 45 to 60 days ago, a time when mortgage rates were lower (mid to upper 3-percent range in May, low to mid-four-percent range in June), so we are seeing a lagged effect relative to the present state of the market.

At present, supplies of used homes are holding at a 5.1 month level, while prices continued to be recorded with double-digit gains over the same period last year.

30 FRM vs NHS_08.23.13

New-home sales

The existing-home sales report provides a strong contrast against sales of new homes, which are recorded when a contract for sale is executed, and may better reflect immediate demand conditions at the time.

In July, when mortgage rates had moved even higher than June, sales of new homes slumped by 13.4 percent. Sales for June, May and April were also diminished by a total of 70,000, while prices moved up by 4.1 percent for the month.

With the slump in sales, inventory levels moved up to a 5.2 month supply, closer to normal, with the actual number of units built and ready for sale rising to 171,000, an increase of 7,000 over June, but still historically low. With low stockpiles, builders will likely remain happy as they replenish inventories in expectation of a long-run improvement in housing as we go forward.

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3 Responses to “How are rising mortgage rates affecting home sales?”

  1. Michael Canning Says: August 27th, 2013 at 11:03 am

    This is good information and indicates some improvement in the market. However, it would be more useful with a comparison of the same period last year. Traditionally, the end of the busy Spring market coincides with the timing of the drop noted. Additionally, price increases are partially attributable to a low inventory of desirable properties. Many sellers are in a negative or low equity position and will not sell until they see more market improvement. So, the buyers are bidding up prices on a small pool of options.

  2. Stu Says: August 28th, 2013 at 12:04 am

    This is exactly what I have been wondering. I was considering buying a home this past year. One that was super cheap and near campus to rent, and then sell later because it seemed like the market was right however I wonder if the market stagnates for a while if it isn’t better to just put my money in other investments like stocks?

  3. cierra1 Says: September 5th, 2013 at 3:16 pm

    My home has gone up in value in a big way the last year. The comps are up about 20% since i bought about 3 years ago in southern california. I cant imagine that prices will continue to go up, especially if the feds raise interest rates.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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