However, I don’t think interest rates are the most important factor, and don’t think they’ve increased to the point where they’re doing much to hurt the local housing market. Economists, housing analysts and others have been debating this topic. For example, a recent article in the Mortgage News Daily said the rise in mortgage rates over the past couple of months has been “significant” and “could hamper the housing recovery.” On the contrary, economists participating in Fannie Mae’s Economic Strategic Report said, “home sales so far have been little affected by the spikes.” The article stated 30-year fixed-rate mortgage rates jumped more than 110 basis points from the first week of May to the end of June. By mid-July, the average rate on a 30-year fixed mortgage had leveled off to 4.37 percent. As Fannie Mae’s report documented, rates are still near historical lows. “Mortgage applications for home buys have fallen about 9 percent since early May, when the rise in rates began,” Mortgage News Daily reported. “However, pending home sales during the same period rose to the highest level in more than six years. Many of those sales, though, are in cash, which means they may be less tied to the rise in mortgage rates. The prevalence of cash buyers is a key factor where more than half of all existing homes have been bought with cash in recent years. Since more people use a mortgage to buy new homes, rising rates could be a bigger factor for new-home sales.
The rapid rise in mortgage interest rates could affect housing affordability through higher monthly mortgage payments. However, monthly mortgage payments are not the only path by which rising interest rates can affect affordability. Homebuyers can instead decide to raise their down payment amount to maintain an otherwise constant monthly payment in the face of rising rates. As interest rates rise, homebuyers increase their down payment to keep monthly mortgage payments roughly the same. Alternately, homebuyers seeking to maintain affordable monthly mortgage payments may lower their bid price on a home. In aggregate, lower bids that are accepted by house sellers could depress house price growth, partly offsetting recent gains. However, accumulating a larger down payment may be difficult, especially for recent homeowners with little home equity, as well as first-time home buyers. These numbers illustrate a large issue challenging the demand side of the housing market, which is connected to the issue of pent-up housing demand. Obtaining a mortgage to buy a home, including
accumulating the necessary down payment, is in many ways a greater hindrance for the market than recent rate increases.
— Sonja J., North Las Vegas
ASK GABE by Gabriel Palotas HHR Manager, has more than 20 years of real estate experience with a proven record of productivity, quality and integrity.
(Lic. FL Real Estate Broker • Nat. Auctioneers Ass. NAA • Int. Consortium of Real Estate • ICRE Transnational Referral Cert.)