Increasing Mortgage Rates May Increase Downward Pressure On Housing Demand

 In Bond Investing, Personal Finance

mortgage rates

Today, the Financial Times reported that mortgage rates hit a 2017 high.

The following chart from the St. Louis FRED’s system is a bit behind the article’s data, but it also shows that mortgage rates are higher:

mortgage rates

At what point does this impact the housing market? We don’t know – there is no basic rule of thumb linking basis point increases in mortgage rates with home sales. However, data shows that both new and existing home sales may be peaking:

mortgage rates

The above chart shows new and existing home sales. Both sets of data are recalibrated to a base 100 beginning on the last day of the last recession. Existing sales (in red) have been reported at the same level (~110 on the chart) since July 2105. This is by far the larger market. New homes sales (in blue) increased in 2H 2016, but have since printed at approximately the same level.

At some point, interest rates will increase to a level where they will construct demand.

Submitted by Hale Stewart via Seeking Alpha.

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Sergey Sanko
Sergey had started an IncomeClub after years of being an investment advisor for high affluent investors and managing fixed income securities. He is the lead investment advisor representative and holds a Series 65 license. Sergey earned his Executive MBA degree from Antwerp Management School.
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