|Mortgage rates up sharply, but demand,
Even as mortgage rates rise, home buyers have reason
for hope. Demand for houses is slipping and median prices are falling.
The affordability crisis might be easing.
The last three years have felt nightmarish for renters who wanted
to buy but couldn't find houses they could afford. Home prices in
the hottest markets were rising 20 percent a year or more. Some markets
might still be hot, but nationally, home sales and median prices are
Meanwhile, mortgage rates are warming. The benchmark 30-year fixed-rate
mortgage jumped 11 basis points to an average of 6.28 percent, according
to the Bankrate.com national survey of large lenders. It had not
been that high since the last week of 2005, when it also was 6.28
percent. A basis point is one-hundredth of 1 percentage point. The
mortgages in this week's survey had an average total of 0.35 discount
and origination points. One year ago, the mortgage index was 5.67
percent; four weeks ago, it was 6.27 percent.
The 15-year fixed-rate mortgage rose 12 basis points to 5.87 percent.
The 5/1 adjustable-rate mortgage rose 14 basis points to 5.89 percent.
Slight scent of inflation
This week's rise in mortgage rates happened at the same time as
the release Jan. 26 of the report on durable goods orders in December.
Orders were up 1.3 percent -- higher than most investors and economists
had expected. Bond investors interpreted the report to mean that
industrial production might be stronger-than-expected this year,
carrying the possibility of rising inflation. And higher inflation
expectations equaled modestly higher interest rates.
The Federal Reserve's rate hike Tuesday was so widely anticipated
that it didn't affect mortgage rates. The bond and mortgage markets
already had factored it in.
Rising mortgage rates are bad news for people who are shopping
for a house, but falling prices might offset some of the damage.
The National Association of Realtors reports that, of existing homes
that were resold in December, half sold for more than $211,000.
That's down from a $215,000 median home price in November, which
was down from a $218,000 median price in October.
Yes, that's a trend
David Berson, chief economist for Fannie Mae, points out that median
prices for existing homes fell in four of the last six months of
2005. And resales of existing homes fell in each of the final three
months of the year.
"Three consecutive months of sales declines are certainly
suggestive of a trend," Berson remarks dryly in his weekly
commentary, while noting that "the December annualized sales
pace was more than 10 percent below June's peak."
Even with that three-month slide at the end of the year, 2005
marked a record year for home resales, with 7.07 million units sold.
Most economists believe there will be a decline in home sales this
year, but few, if any, predict a nationwide price decline.
New home prices down, too
As for smaller market for new homes, sales were up 2.9 percent in
December compared to the previous month, but the median price of
a newly built house fell 2.2 percent, to $221,800. The median price
of a new home has fallen three months in a row.
It looks like January and February could be sour
months for home sales, too. The Realtors compile a pending home
sales index that tracks the number of purchase contracts signed.
The index was down 3 percent in December, the Realtors said Wednesday.
That implies that a slower pace of home sales in January and February.
The Realtors' chief economist, David Lereah, says home sales lag
a couple of months behind movements in mortgage rates. He believes
that the slower sales pace at the end of 2005 was a result of rising
mortgage rates in the fall. He expects a modest pickup soon.
But he seems to think that the days of rapid price appreciation
are over for now. "We're going through a period of adjustment,"
he says. "As home sellers recognize a return to more normal
rates of price growth, some that have been holding out for higher
prices will be more willing to negotiate terms that are acceptable
to buyers but still provide them a solid return on their investment."
That might not make sellers happy, but could be a boon to buyers.