INTEREST RATE CONUNDRUMS
By: Lawrence Yun
Rising interest rates are not dampening enthusiasm about the housing market. In a recent survey by the National Association of REALTORS®, 47 percent of consumers said it was good time to buy and 39 percent said it was a good time to sell. Both figures are up from a year ago.
This improved sentiment is reflected in recent market data. New-home sales are running 10 percent above last year’s levels, while existing-home sales are about 5 percent higher. On average, homes are selling in just 45 days, compared to 59 days at this time last year.
Consumer confidence in the broader economy is rising. The consumer confidence index shot up 10 points in March to reach 126, the highest level since December 2000. The general business community is also happy, with its index reaching its highest mark in over a decade.
That said, higher confidence has yet to translate into notable improvement in the economy; first-quarter GDP growth, although positive, remains stuck in low gear. But GDP should do better in subsequent quarters, especially as home builders boost construction.
Of course, the improving economy will mean higher interest rates. Though mortgage rates appear to have settled down recently, a further rise is inevitable. Rates will likely surpass 4.5 percent by year’s end. They’ll rise even higher in 2018. But because many homeowners are locked into a 3.5 percent rate, the question remains: Will households stay put to hold onto their low rate or move in response to changes in their lives?
About two-thirds of buyers in our recent survey said family concerns—the need for a larger home, a job relocation, or marriage or divorce—triggered their decision to move. In short, the decision wasn’t based on broad economic trends. How home sales fare in the years ahead will depend, in part, on the actions of parents with young children. Will they stay put to retain their low interest rate or seek that bigger house closer to schools?
Okay, kids, time to get your parents to love you more than their low rates!