Housing Recovery and Rising Mortgage Rates

Filed under: Market Comentary

housing recoveryMany potential homebuyers and many people in the mortgage industry are wondering how the rising mortgage rates will affect the housing recovery. In a recent article by Dakin Campbell, he suggests that there isn’t a need to worry.

Chief Financial Officer Tom Sloan of Wells Fargo & Company, the largest U.S. mortgage lender, was quoted as saying, “Rising mortgage rates probably won’t slow the housing recovery because new families are being created and homes are still affordable.”

At an investor conference earlier this week in New York, Sloan added, “We don’t believe that the recent increases in mortgage rates are going to in any way, shape or form, snuff out the housing recovery. When you look at an sort of statistics in the demographics in terms of household creation as well as household affordability, they are still very attractive and should drive a continued recovery in the housing business.”

Campbell’s article indicated that according to Freddie Mac data, the average rate on a 30-year fixed-rate mortgage has risen more that 1.2 % since hitting a low in May. That has not stalled home prices in the United States, which have actually risen 7.7% this year through June, according to an August report by the Federal Housing Finance Agency.

Another article by Nin-Hai Tseng also explains that interest rates alone don’t drive home prices. According to Tseng, if the past few economic recoveries say anything about interest rates, it’s that the cost of taking out a home loan have almost no factor on home prices.

Standard & Poor’s Case-Shiller home price index showed that prices in May posted the biggest gains since 2006 in 20 cities that were tracked. And, the index rose 10.2% in the first three months of 2013.

According to Tseng’s article, the rebound has been driven by factors beyond borrowing costs. This is mainly due to the fact that banks have tightened their lending standards. One example is how job growth has helped make families more willing to purchase a home. And, although the unemployment rate is still relatively high, employers across the nation have now added jobs for 32 consecutive months.

It is still a great time to buy or refinance your home. So, if you are thinking about doing either of these, please give me a call and we can discuss all of your concerns.


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