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What to expect with rising mortgage rates.

What to expect with rising mortgage rates.

by Eric Allee 11. August 2013 10:26

Home Prices and Mortgage RatesSince early May 2013 to mid-July 2013, 30-year fixed interest rate mortgages have jumped from 3.35% to 4.51%.  This has led people to the question of what, if any, impact this trend will have on home sales prices.  To address this question, The Federal National Mortgage Association, FNMA or more commonly known as Fannie Mae, studied mortgage rates going back to the 1990s.  Fannie Mae’s research came to the surprising conclusion that rising interest rates had no impact on home sales prices but decreased the number of homes sold.


Fannie Mae’s study examined two time periods with increasing mortgage interest rates:  1) October 1993 – December 1994 when interest rates increased from 6.8% to 9.2%; and 2) October 1998 to May 2000 when interest rates increased from 8.5% to 6.7%.  During the first interest rate increase, home prices leveled and fell slightly.  During the second period, there was no impact whatsoever on housing prices.  The historical study showed increasing mortgage interest rates are more likely to be linked to a decrease in the number of home sales not in home prices.   The study concluded that home sellers are reluctant to lower prices regardless of the interest rate and homebuyers are eager to  purchase and are willing to take on an adjustable rate mortgage loan to achieve their goal.  The Mortgage Bank Association supports the study’s conclusion by saying people’s motivation for purchasing a home is primarily linked to personal factors such as, the need to relocate, changing space needs, and human emotion where the buyer simply falls in love with a particular house and wants to buy it.

Nonetheless, some experts predict that the rapid increase of mortgage points to 4.51% since May 2012 will have a negative impact on housing prices and the housing market recovery.  An economist with Moody Analytics predicts, however,  that buyers will not shy away from the current mortgage rate because it is far lower than the historical average of 6%. 

Regardless of the viewpoint, it appears that the rising interest rate will not hurt housing prices but will simply reduce the volume of houses being sold.  

 

If you would like to read more about the current trends in home sales, please refer to the following links that were used to write this article:

http://money.com

http://www.housingwire.com

http://www.fanniemae.com


Eric Allee

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Comments (1) -

GastonGary United States
11/15/2013 12:40:08 AM #

Thank you.That was very good information.

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