Will Soaring Mortgage Rates Pop US Housing Bubble?

If you like bad puns, call it another crack in the foundation. New US home sales dropped 2% in February, data out Wednesday showed. It was the second consecutive monthly decline (figure below). The annual pace, at 772,000, was robust, but missed estimates. Consensus was looking for 810,000. The range, from five-dozen economists, was 750,000 to 890,000. Note that January's annual pace was revised lower, to 788,000 from 801,000. BMO's Ian Lyngen called it "a slightly softer look at real estat

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4 thoughts on “Will Soaring Mortgage Rates Pop US Housing Bubble?

  1. I had my home for sale in 2013, but changed my mind and held on. In 9 years, the price went up and rates bounced around every day, this latest mortgage rate explosive shock is like a dark cloud drifting along in a spring storm. Making molehills into hurricanes or people dreaming that a crash is imminent need perspective.

    Here’s perspective from a 2013 story at calculatedrisk:

    “Fannie Mae chief economist Doug Duncan as quoted in a NY Times article a couple of weeks ago: In a Shift, Interest Rates Are Rising
    “There’s no strong correlation between interest rates and home prices,” said Douglas Duncan, chief economist at Fannie Mae.
    Duncan is correct.

    However, a key difference now compared to earlier periods, is that there is more investor buying. And investors will compare their returns on different investments – and rising rates will probably slow investor demand for real estate, even if they are all cash buyers. But, in general, I think rising rates might slow price increases but not lead to a decline in prices (we might see some seasonal declines).”

  2. I think investors are more tolerant of rate increases, because the value they get from the house (rent) is rising faster than inflation. Also, the institutional investors aren’t using standard mortgages.

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