A Potential Rise In Mortgage Rates Threatens Housing Recovery

An upward trend in home sales may indicate that the sluggish housing market is finally rebounding from historic lows, but it’s not time to celebrate yet. Sales are …

An upward trend in home sales may indicate that the sluggish housing market is finally rebounding from historic lows, but it’s not time to celebrate yet. Sales are still well behind last year’s level – even in the wake of recent government subsidies. With low consumer confidence and employment, the looming threats of inflation and higher mortgage rates are poised to keep any recovery at bay. See the following article from HousingWire for more on this.

Pending home sales rose 4.3% in August from the month earlier but remain significantly lower than the year ago, and any “sudden rise in mortgage rates could slow the recovery.”

The National Association of Realtors said its pending home sales index, which is based on contracts signed, was 82.3 for the month, up from a downwardly revised 78.9 for July, yet 20.1% lower than a reading of 103 a year earlier.

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NAR chief economist Lawrence Yun said historically low mortgage rates “appear to be bringing buyers back to the market.” But more jobs and an accompanying rise in consumer confidence are needed to keep the pace of recovery in home sales progressing, according to Yun.

“Current low consumer price inflation has helped keep mortgage interest rates very attractive this year. However, recent rising trends in producer prices at the intermediate and early stages of production, along with very high commodity prices, are raising concerns about future inflation and future mortgage interest rates,” he said. “Higher inflation would mean higher mortgage interest rates. In the meantime, housing affordability is hovering near record highs.”

The index increased 5.2% in July from the prior month, when it rose 2.8% from May after plummeting nearly 30% from April. NAR attributed the drop in the spring to the expiration of the federal homebuyer tax credit on April 30. Prospective homeowners who signed a sales contract by April 30 had until Sept. 30 to close the deal and still get the government credit of $8,000 for first-time buyers and $6,500 for existing homeowners.

Regionally, the August pending-sales index in the Northeast was 60.6, down 2.9% from July and now 28.8% below the year earlier. In the Midwest, the index was 68 for August, up 2.1% from the prior month but 26.5% behind the year ago. Pending sales in the South rose 6.7% to an index of 90.8, which is 13.1% lower than August 2009. In the West, the monthly index read 101.1, an increase of 6.4% from July but almost 20% lower than the year earlier.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year NAR examined the data and the the first of five consecutive record years for existing-home sales.

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.


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