Higher Mortgage Rates Could Slow Housing Ahead of Spring Buying Season
As the ten-year Treasury yield surpasses 2.0% and mortgage rates near 4%, economists are weighing the impact of Fed policy and looking ahead to a sales and house price growth slowdown, says Bill McBride in the CalculatedRisk Newsletter. The immediate impact of higher mortgage rates is less refinance activity, a trend already popping up in the Mortgage Bankers Association’s (MBA) refinance index, which has declined sharply over the past several months.
New home sales have historically decreased during periods of rising mortgage rates, and existing home sales have also declined as interest rates have risen in years past. Surging mortgage rates could cause house price growth deceleration, though it could take several months to see the ultimate impact on prices.
Looking back at previous periods with similar increases in mortgage rates - like in 2013 when mortgage rates increased from 3.4% to 4.5% from May to July - new home sales fell from about 440 thousand per month to about 390 thousand per month. This was a decline of about 10%.
There was a similar decline in 1994 when rates increased from 7.2% to 8.4%, and new home sales fell from around 730 thousand to 650 thousand. And in 2018, rates increased from around 4.0% to 4.9%, and new home sales declined from around 650 thousand to 590 thousand.