Mortgage interest rate rise not big issue for some buyers

: Jul 02, 2013

The National Association of Realtors says hesitant homebuyers are pulling the trigger on purchases because mortgage interest rates are starting to rise. Their opinion is based on their own Pending Home Sales Index, or PHSI, which increased 6.7% from April to May, its 25^th month-to-month increase in succession. The May index of 112.3 was its highest level since December 2006. The NAR also revised its 2013 median home price forecast upward by 10%, to $195,000, which would be the highest level since 2005.

Frequent readers of this site know we are always skeptical about the NAR’s motives in their communications, and this latest bit of guidance makes us no more comfortable. Buyers were already coming off the sidelines because of a generally improved economy, a rise in the stock market, and a dramatically reduced inventory of homes for sale. Rising

40% of all homes sold nationwide were in the South.

interest rates may certainly cause a bit of panic for wannabe first-time home buyers, but those with an appreciating home to sell – and substantial equity in it – should care more about whether the golf home in the South that they might buy is appreciating today at a faster rate than the one they hope to sell.

For this, however, the NAR does provide a bit of helpful guidance. The median price for homes sold in the Northeast region, according to the organization, was up 12.3% in May from the previous May, and in the Midwest, prices increased 8.2%. In the South, though, prices increased by 15%, indicating its continuing attractiveness to those looking for new lives in generally warmer climes. Significantly, 40% of all homes sold in May nationwide were in the South.

Of course, one can argue that the rise in interest rates could reduce the number of available buyers for properties put up for sale by couples looking to move to a southern golf community in retirement. But for the moment, inventories are low enough to neutralize the effects of slightly higher interest rates; and if the NAR and other real estate industry factions succeed in seeding the market with panic over the increased rates, those folks with their homes on the market now or soon will benefit.

Really, though, for a baby boomer couple in, say, Pittsburgh or Portland, ME, or Albany, NY, or Chicago, the multiple-percentage-point differences in home sale prices North and South should mean more than a fractional increase in mortgage rates, certainly in those situations in which couples will use the equity from the sale of their primary home to pay in full for their new, presumably smaller and less expensive, home in the South.