An interesting question was posed to us recently, "with interest rates expected to continue to rise, how will this impact the housing market and purchase demand?" As real estate professionals, whether as a realtor or loan officer, the idea of rising rates can trigger a great deal of anxiety for the impact on our business. Though published in December of 2016, our friend Diana Olick at CNBC published a wonderful piece that provides for one perspective that may allow for some relief to our discomfort – the article, entitled "How rising mortgage rates may not matter for housing", offers an interesting forecast for the environment we might expect to see this year. The title alone may entice a deep sigh of relief, but let us not be hasty, for as the ancient proverb goes "hope for the best and prepare for the worst" – it is important to consider all opinions when attempting to make sense of things. 

          The premise of Diana's article is as the title reads, that interest rates may not necessarily have the type of negative impact on housing that conventional wisdom might expect – she goes on to say that "after all, increasing rates are indicative of a stronger economy, and a stronger economy favors housing." Additionally, Doug Duncan, chief economist at Fannie Mae, pointed out in an interview with National Mortgage News that "if interest rates are rising because the economy is growing more rapidly, then, typically, incomes also rise, and the rise in incomes offset the increase in the size of the mortgage payment, and housing goes just fine."

          It is important that we still take a moment to pause and recall that interest rates, even though having risen from a national average of 3.5% to 4.25%, still remain at near historic lows. Berkshire Hathaway Home Services President Stephen Phillips points out how "it may not seem that way to recent, first-time buyers and those considering a home purchase", but ask any baby boomer and they will be happy to share with you about the time when interest rates were in the double digits.

          Nonetheless, according to researchers at Zillow "buying a home is less tied to current mortgage rates and more closely linked to a consumer's financial well-being. Life events, such as job changes, promotions or change in the number of people in the household are the precipitating factors for a purchase." Vice President of mortgages at Zillow Erin Lantz added to the company's survey results that "rising rates may impact the location or size of the home they hope to purchase, but buyers that are fully committed to buying a home are unlikely to be swayed by the Federal Open Market Committee's decision to raise rates." This opinion continues to be observable in today's market as one of the most pressing issues regarding housing has absolutely nothing to do with home prices or annual housing expenses, but rather the supply of homes available to purchase. We recall from last week's shot that the National Association of Realtor's recently reported that there were only 1.83 million existing homes available for sale, 6.6% below the number available at the end of the first quarter of 2016, and exclaiming we had the strongest quarterly sales pace in exactly a decade!

          Maybe another more prevalent version of the aforementioned proverb from earlier from the legendary Zig Ziglar can better provide for a compass for which to navigate - "expect the best, prepare for the worst, capitalize on what comes."

 

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1. Do you have a real estate topic for our next blog? Send us a message at [email protected]
2. Want to join me for lunch? E-mail [email protected] and let's get something on the calendar!
3. Looking to grow your real estate business by leveraging key mortgage concepts? Join us for our Elevate conference and RSVP to [email protected]. Our next event is October 26th, 2017 at the Marriott Courtyard in Boynton Beach!

 

The views of this blog, podcast, and on this site in general are solely those of the authors, Matt Weaver (NMLS-175651) and Zack Lewis, and do not express the views or opinions of Finance of America Mortgage.