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Five Reasons Housing Isn’t Ready to Drop Dead
Caroline Baum / Bloomberg / August 28, 2013
Hissss! That’s the sound of the air coming out of the housing market. At least that’s what some folks thought they heard when the U.S. Census Bureau reported a 13.4 percent dive in new home sales in July, the biggest decline in more than three years and one that coincided with a sharp increase in mortgage rates.
Don’t start writing housing’s obituary just yet. First, the residential real-estate market just got going. Only in the last two years has residential investment contributed in any significant way to economic growth. It has to make up for lost time.
Second, what might look like a lack of demand may actually be a dearth of supply.
So pour the water out of that half-empty glass. Then refill it to half full and consider some of the positives:
1. Mortgage rates and the theory of relativity
The rate on a 30-year fixed mortgage rose to 4.58 percent last week from 3.53 percent in early May, according to Freddie Mac. That’s a hefty jump. But after years of consistently falling rates, the first move off the lows tends to energize the fence-sitters more than deter potential buyers, according to Michael Carliner, an economic consultant who specializes in housing.
With house prices finally turning up late last year, that fence is becoming an increasingly uncomfortable perch. So yes, mortgage rates have risen more than a full percentage point in the last four months, and there is going to be a certain amount of sticker shock for those considering financing options for their purchase. But in the grand scheme of things, 4.6 percent is a pretty good rate for a 30-year mortgage. Just ask people who bought a home in the early 1980s and locked in at a rate of 15 percent or more.
At this point, the inability of many potential homeowners to qualify for a mortgage is still a bigger issue than rates.