The June existing home sales report from the National Association of Realtors showed a pickup in sales to an annualized pace of 5 million for the first time since October of last year. According to Lawrence Yun, NAR Chief Economist, housing fundamentals are moving in the right direction with existing supply helping balance out the market. Even as the housing market improves and prices rise around the country, other economists are worried rising interest rates could derail the nascent recovery.
Regions Financial Chief Economist Richard Moody echoed most conservative views that “without a better pace of income growth, any increase in mortgage rates—assuming the much-anticipated increase in long-term interest rates actually materializes—will take a bite out of home sales.” Should rates stay low and buck expectations, Mr. Yun believes “inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country. This bodes well for rising home sales in the upcoming months as consumers are provided with more choices.”
Existing home purchases, which account for over 90% of all home sales, lost momentum in the middle of 2013 as interest rates spiked and prices surged. The harsh 2014 winter piled on more bad news, but interest rates soon marched back to 2013 levels boosting home sales during the crucial spring and early summer selling season. Falling unemployment rates nationwide also contributed to the recovery.
Both buyers and sellers have to watch near term Federal Reserve policy changes very carefully. Critics argue the Fed’s bond buying stimulus stoked the real estate recovery following the Great Recession, but may now possibly be keeping interest rates too low for too long. A faster than expected rise in mortgage rates would put an unwelcome damper on the already sub-par economic recovery dragged down by negative home equity, supply shortages of new construction, and stagnant wages.