Are mortgage rates dampening home sales?

In According to NAR’s most recent housing report, the answer is a firm “NO”.  In fact, home sales in 2013 rose to the strongest level in 7 years.  This taken directly from NAR’s RealtorMag:

“Existing-home sales have risen nearly 20 percent since 2011, with job growth, record low mortgage interest rates, and a large pent-up demand driving the market,” says Lawrence Yun, NAR’s chief economist. “We lost some momentum toward the end of 2013 from disappointing job growth and limited inventory, but we ended with a year that was close to normal given the size of our population.”

Existing-home sales rose 1 percent in December 2013 compared to November and reached a seasonally adjusted annual rate of 4.87 million.

Existing-home sales for all of 2013 reached 5.02 million sales, 9.1 percent higher than 2012, and the largest rise since 2006 when sales were at 6.48 million at the close of the housing boom, NAR reports.

Home prices were also on the rise in 2013, up 11.5 percent over 2012, with a median existing-home price of $197,100 last year compared to $176,800 in 2012. It was the strongest gain in home prices in a year since 2005, when home prices rose 12.4 percent, NAR reports.

NAR President Steve Brown says that with job growth expected this year, home sales should hold despite rising home prices and higher mortgage rates.

“The only factors holding us back from a stronger recovery are the ongoing issues of restrictive mortgage credit and constrained inventory,” Brown says. “With strict new mortgage rules in place, we will be monitoring the lending environment to ensure that financially qualified buyers can access the credit they need to purchase a home.”

Housing Recovery Regional Snapshot

Here’s a look at how existing-home sales fared in December and for the year across the country:

  • Northeast:      Existing-home sales fell 1.5 percent in December but remain 3.2 percent higher than December 2012. Median price: $239,300, up 3.6 percent from year ago levels
  • Midwest:      Existing-home sales dropped 4.3 percent in December and are 0.9 percent below year ago levels. Median price: $150,700, 7 percent higher than December 2012.
  • South:      Existing-home sales rose 3 percent in December and are 4.6 percent higher than December 2012. Median price: $173,200, up 8.9 percent from a year ago.
  • West:      Existing-home sales increased 4.8 percent, but are 10.7 percent below a year ago. Median price: $285,000, up 16.0 percent from December 2012.


Last Week’s Mortgage Rate Recap

Mortgage Rates Currently Trending: IMPROVING

Last week saw rates improve from .125 to .250% on average depending on the lender.  Most of the improvements came late in the week, with some improvements being felt with today’s rates (which reflect Friday’s great MBS (mortgage-backed securities) market performance.  Last week had very little economic data being released, and most of the improvements came due to equity markets performing poorly.  Equity markets (the stock market) saw a sell off which many attributed to poor economic news overseas.  Whatever the reason, MBS saw over 80 basis points of improvements over 2 days which will really help mortgage rates for this week.

This Week’s Mortgage Rate Forecast

Mortgage Rates Forecast: VOLATILE

This week we need to see if the MBS (mortgage-backed securities) market can continue the improvements or will instead bounce back and see rates go up again.  There is a lot of economic data being released this week that will drive trader behavior and will drive MBS performance, and therefore affect mortgage rates.  The biggest event of the week will be the FOMC policy statement on Wednesday.  Traders will watch closely to see if the Fed continues to taper, and if they do, the amount they decide to taper.  Expect this week to hold extra volatility and see rates possibly change from day to day.

BOTTOM LINE:  Work closely with your Mortgage Loan Professional to monitor the market in real time to stay ahead of a reversal and the worse rates that will come with it.  It is not likely we see a large movement in rates either way, instead seeing slight gains and losses.