How do high mortgage rates affect the housing market?

An update on mortgage rates, foreclosures, home prices and other important housing news.

by Myles Biggs

With mortgage rates bobbing up and down at a seemingly unpredictable rate from week to week, many home buyers and home sellers are wondering how this will affect the housing market. While no one can answer that question definitively, we can certainly cite the facts. 

Increased Mortgage Rates

This week, 30-year fixed mortgage rates rose to 4.51% - according to Freddie Mac this is the highest the rate has been in nearly two years. A previous spike in mortgage rates took place two weeks ago and was blamed on comments by Federal Reserve chairman Ben Bernanke about slowing down the government’s purchases of bonds and mortgage-backed securities. This week's increase is believed to be due, in part, by gains in employment rates and hourly wages.

Since these initial comments by Bernanke about curbing the Federal Reserve’s stimulus initiatives, the Federal Reserve has stated that they will first concentrate on trimming their purchases of Treasuries and continue to buy mortgage bonds. This will help to keep mortgage rates at lower levels.

Foreclosures Fall While Home Prices Rise

Moving beyond mortgage rates, foreclosure woes in the United States may be nearing their end. According to RealtyTrac, total foreclosure filings dropped to less than 128,000 in June – that is a decrease of approximately 35% in 12 months. These are the lowest monthly numbers since December of 2006 and before the housing bubble burst. While certain states still retain high levels of foreclosures, it would appear that this is no longer a nationwide issue.

While foreclosure rates are falling, the United States Census Bureau announced an increase in median home prices. Released yesterday, the 2011 American Housing Survey Profile reports that the median price of a home was $110,000 in 2011, a 2.3% increase from 2009 when the median price was $107,500. As the housing market continues to return, these numbers should also continue to increase.

Market Confidence 

A recent survey done by the National Association of Realtors (NAR) revealed that 85% of buyers under the age of 32 considered their purchase of a home to be a good investment. Home owners under the age of 32 are considered to be at the older end of the Millennial Generation, which is the largest in history after the Baby Boomers. As more of these young and confident buyers enter the market, we can expect to see a boost to both housing demand and the overall economy.

What Does This Mean?

These facts, these surveys and these studies bring an immense amount of varying information forward. While, different schools of thought tout high mortgage rates as the end of the housing recover and others credit them to a return of a normal and healthy market – other reports are showing falling foreclosure rates, increased home values and confidence in the market by the youngest buyers.

The NAR survey mentioned above proves that the American Dream of home ownership is still alive. At Ritz-Craft we know that no matter what, housing is not a fad. This country continues to grow and our increased population will continue to need new homes.

We would love to hear your thoughts about the current housing market or about modular homes, please feel free to leave a comment below.