Housing recovery should continue despite rising rates

One apparent negative for the housing market may be the rising mortgage rates, but other factors seem to show that despite an increase, the overall market won't slow down anytime soon.

It appears that the housing market is coming back strong over the past several months. Since the economic downturn, home sales are up, unemployment is down and more people are looking to buy or sell. One apparent negative may appear to be the rising mortgage rates, but other factors seem to show that despite an increase, the overall market won't slow down anytime soon.

Interest rates for a 30-year fixed-rate mortgage  averaged 4.51 percent in June, up from 3.35 percent at the beginning of May, according to a statement from Mark Palim, vice president of the economic and strategic research group at Fannie Mae. There was a 116 basis-point increase over the course of nine weeks, a possible red flag for the surging housing market.

Currently, Freddie Mac lists mortgage interest rates still at the 4.51 percent mark for the start of July, while a 15-year FRM is at 3.53 percent. These real estate records are raising questions about the future growth of the market, and just how sustainable it all is. Not everyone is concerned, though, and Palim believes that the rates won't have a negative effect just yet, HousingWire stated.

"While there is no historical precedent for the effect on the housing market from an increase or decrease in mortgage rates due to the Federal Reserve's policy of quantitative easing," said Palim, "history suggests that interest rate increases at the level recently witnessed will not stop the current housing recovery."

Sales still strong despite rates
The numbers are improving, and this lends credence to Palim's beliefs. Recent property data from the National Association of Realtors showed that home sales in May improved, and that marked a continued trend over the past year. 

Total existing-home sales increased 4.2 percent during that month, which is 12.9 percent better than May 2012. Lawrence Yun, chief economist of the NAR, noted he expects demand for homes to continue, with the only downside being the limited amount of listings.

"The housing numbers are overwhelmingly positive," said Yun. "However, the number of available homes is unlikely to grow, despite a nice gain in May, unless new home construction ramps up quickly by an additional 50 percent. The home price growth is too fast, and only additional supply from new homebuilding can moderate future price growth."

However, from October 1993 to December 1994, rates rose almost 3 percent, according to data from Freddie Mac. Existing-home sales were stalled then, but the effect on home prices was minimal. Palim stated that the current rates shouldn't be enough to stop the housing market from continuing its positive trend. 

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