As Mortgage Rates Climb, Home Sales Slip

December 30, 2013

Rising mortgage rates are biting into home sales. The Wall Street Journal reports that this will likely continue as interest rates readjust in the new year and as the Federal Reserve winds down its bond-buying stimulus program.

The relationship between rates and home sales is most evident so far with new homes: As interest rates have risen, demand for new homes has also fallen. When mortgage rates began rising in May, the seasonally-adjusted annual rate of new-home sales fell by 4 percent from the prior month, according to the Commerce Department. Meanwhile, in October, mortgage rates fell by three-tenths of a percentage point, and new home sales then soared 18 percent. 

“If we see a pretty quick rise [in mortgage rates]—maybe a half a percentage point to percentage point rise—it’ll make for some bumpy demand in 2014,” says Ellen Haberle, an economist at Redfin.

While mortgage rates are still at historical lows, 30-year fixed-rate mortgages have risen nearly a full percentage point since May. The 30-year fixed-rate mortgage averaged 4.48 percent last week—the highest level since mid-September, according to Freddie Mac. The interest rate on U.S. Treasury bills is rising, which also could signal higher interest rates on the horizon.

Source: “Mortgage Rate Swings May Mean “Bumpy” 2014 Housing Market,” The Wall Street Journal (Dec. 27, 2013)

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