Rising mortgage rates not likely to crimp existing home sales

Rising mortgage rates not likely to crimp existing home sales
Written by Publishing Team

Existing home sales activity is more influenced by the underlying causes Mortgage rates riseNot only did they go up, says a report from First American.

In the past thirty years, mortgage rates have increased significantly six times. In two of those periods, higher rates caused existing home sales to decline.

Back in 2005 and 2006, before the financial crisis broke out, rate increase It was driven by Federal Reserve actions to curb inflation, Mark Fleming, chief economist at First American, noted in a press release.

“The Fed’s moves have worked, with existing home sales down more than 12% in about one year,” Fleming said. “Existing home sales also declined in the 1994 high-rate era, as the Fed raised the federal funds rate to prevent strong economic growth from fueling inflation.”

On the other hand, during the 2013 Taper Tantrum, when rates rose because the Federal Reserve signaled wanted to end Quantitative easing program has had no effect on existing home sales.

“Recently, in 2017, it took about a year “From higher prices, before the pace of existing home sales fell below the pace of sales seen before prices started to rise. Context matters and every era of price increases is different,” Fleming said.

The current interest rate environment is driven by the economic recovery in the wake of the pandemic-related turmoil.

“High Mortgage Rates Don’t Change Other Major Housing Market Fundamentals – Strong Millennial home buyerthat will continue to support the housing market for 2022.”

First American said potential existing home sales fell to 6.26 million units on a seasonally adjusted annual rate in November, down 0.3% month-on-month. But the market potential is 422,000 SAAR units, or 7.2% higher than it was a year ago.

During November, existing home sales outperformed their potential by 9.4%, or an estimated 586,000 SAAR units.

“Our potential home sales model indicates that family formation, increased home purchasing power, and lax credit conditions have continued to drive the housing market’s potential compared to what it was one year ago,” Fleming said. “However, limited stock in dampening the potential of the housing market, a dynamic that we expect to continue into 2022.”


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