GlobeSt.com: What affect do rising interest rates have on housing stock?

Fleming: Declining rates generally spur housing starts and expand the housing stock, but more recently we have seen continued increases in housing starts, even as rates have risen, so I don't think rates are currently strongly influencing housing starts.

GlobeSt.com: Do rising rates encourage people to list their homes before the rates climb too high, or do they discourage people from listing their homes?

Fleming: Both. If you were serious about moving, then it encourages listing sooner, mostly because you want to capture the lower rate on the next house you buy. If moving is more optional, or not necessary due to a change in life or economic circumstances, then it discourages listing. That's partly why we see a lack of inventory today.

GlobeSt.com: Is there a “tipping point” beyond which fewer people will list their homes, and have we reached it?

Fleming: Probably, but it's really the tipping point of how expensive it becomes to buy. They won't list if they believe it's too expensive to buy. No, we haven't reached it, and even if we did, people will still move for reasons other than purely financial ones.

GlobeSt.com: What else should our readers take away from your recent Potential Home Sales Model?

Fleming: While rising rates reduce market potential, other conditions, like strong job and income growth, will drive growth in market potential over the long run.

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IRVINE, CA—Rising interest rates both encourage people to list their homes before the rates climb too high and discourage people from listing their homes—the difference lies in why owners are selling, First American Financial Corp.'s chief economist Mark Fleming tells GlobeSt.com. The firm's recent Potential Home Sales model and analysis for February noted that positive economic news is not enough to prevent a slight month-over-month decline in housing-market potential.

According to the report, market potential was down month-over-month in February, but still up from a year earlier. Potential existing-home sales decreased (from February) to a 5.7 million seasonally adjusted, annualized rate. Fleming said, “The housing market's potential for existing-home sales grew 2.4% over the past 12 months, despite increasing interest rates. Strong building-permit activity and an increasing number of people returning to the workforce helped to increase market potential.”

In addition, the report showed that economic momentum and Millennial demand bode well for housing market. Fleming said, “Limited supply, which remained steady at 3.6 months, continues to put upward pressure on prices, as current homeowners are caught in a 'matching trap,' where they are reluctant to list their homes for sale out of concern they will not find a home to buy. Nevertheless, the outlook for further increases in market potential remains bullish, as strong job and income growth and increasing demand from Millennials and first-time home buyers in general, bode well for the housing market.”

We spoke with Fleming about the relationship between rising interest rates and housing stock.

GlobeSt.com: What affect do rising interest rates have on housing stock?

Fleming: Declining rates generally spur housing starts and expand the housing stock, but more recently we have seen continued increases in housing starts, even as rates have risen, so I don't think rates are currently strongly influencing housing starts.

GlobeSt.com: Do rising rates encourage people to list their homes before the rates climb too high, or do they discourage people from listing their homes?

Fleming: Both. If you were serious about moving, then it encourages listing sooner, mostly because you want to capture the lower rate on the next house you buy. If moving is more optional, or not necessary due to a change in life or economic circumstances, then it discourages listing. That's partly why we see a lack of inventory today.

GlobeSt.com: Is there a “tipping point” beyond which fewer people will list their homes, and have we reached it?

Fleming: Probably, but it's really the tipping point of how expensive it becomes to buy. They won't list if they believe it's too expensive to buy. No, we haven't reached it, and even if we did, people will still move for reasons other than purely financial ones.

GlobeSt.com: What else should our readers take away from your recent Potential Home Sales Model?

Fleming: While rising rates reduce market potential, other conditions, like strong job and income growth, will drive growth in market potential over the long run.