SANTA ANA, CA—A gradual rise in mortgage rates won't change homebuyers' decision to buy a home; there are many other factors that go into that decision, says First American Financial Corp.'s chief economist Mark Fleming.
In a recent report from the firm, Fleming says, “In January, the market potential for existing-home sales increased to a 6.1-million seasonally adjusted annualized rate, a 0.4% month-over-month increase and a gain of 210,000 SAAR sales from January 2017. The gap between actual market performance (existing home sales) and market potential (potential home sales) has significantly narrowed as actual existing-home sales have surged in recent months; nonetheless, the housing market is still underperforming its potential.”
Fleming adds that potential home sales, while currently at a level of 6.1 million SAAR, are expected to reach an estimated 6.29 million SAAR by the end of 2019, despite a rising-rate environment. “However, while the yearly growth rate in potential sales is currently at 3.6%, it is expected to slow to just below 1% by the end of 2019.”
He goes on to say that the consensus among economists is that the 30-year fixed-rate mortgages will approach 5% by the end of 2018. Yet, despite four consecutive weeks of rising interest rates, a 30-year, fixed-rate mortgage of 5% is still historically a very low rate. “In fact, the mortgage rate has been greater than 5% in 38 of the last 46 years, so it is unlikely that large numbers of hoe buyers will be dissuaded by a modest increase in mortgage rates.”
The market's overall health is one consideration that should be an important factor in the homebuying decision, says Fleming, and right now, by all counts the market is healthy given the supply-and-demand dynamics. Employment rates are another factor, and the unemployment rate is low and continues to decrease. If interest rates rise as expected, Fleming believes the desire to buy shouldn't be hampered.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
