10 REALTOR® NOVEMBER/DECEMBER 2014 REALTORMAG.REALTOR.ORG
As Rates Move Up, Life Moves On
Mortgage rates haven’t budged, remaining at historic lows throughout the year amid economic growth that has generated 2. 5 million net new jobs over the past 12 months
and a record high stock market. But
uncertainty looms in light of Federal Reserve Chair Janet Yellen’s announcement
that the economic stimulus program
known as “quantitative easing” will halt
by year’s end. Moreover, an increase in
the short-term Fed funds rate is expected
by the middle of 2015. The course of U. S.
monetary policy, in short, will be less
accommodating going forward.
In the meantime, perhaps because of
geopolitical risks in the Middle East and
Ukraine, or because of weaker economic
conditions in Europe, a plentiful amount
of money has flowed into the safe U.S.
bond market, thereby holding interest
rates down. Inflation has been low so
far, too, rising only by 2 percent, another
factor behind the low rates.
Sooner or later, though, interest rates
will have to rise. From the low 4 percent
rate that prevailed for most of this year,
the average mortgage rate will likely
cross over the 5 percent threshold some-
time in 2015 and probably rise to near 6
percent by 2016. Such a change makes
homes less a;ordable, a clear negative
for residential sales. But job creation
and the accompanying rise in consumer
confidence, along with some loosening of
underwriting standards, might more than
compensate for the rising rates.
But what will be the impact on home
owners who have locked in super low
rates? How resistant will they be to giving
those up? That’s something we’ll be tracking. But if past behavior is a guide, most
home owners won’t stay put just to hang
onto a low mortgage rate.
Our own research supports this.
Nearly half of recent buyers indicated
the desire to have a di;erent-sized home
or live in a di;erent neighborhood as the
key reason for moving. Having kids and
selecting a school district they like makes
people move. Another third of recent
movers cited changes in a job or marital
status. Retirement was a factor for others.
Only 3 percent mentioned changes in
mortgage costs as a reason for moving.
Low interest-rate lock-ins seem to
matter far less than life cycle events.
Even as rates move up, life moves on.
Lawrence Yun is
NAR chief economist.
contract activity. An index of 100 is equal to the level
of activity during 2001, the benchmark year.
Seasonally adjusted annual rate,
which is the actual rate of sales for the month,
multiplied by 12 and adjusted for seasonal sales di;erences.
Number of existing homes on the market at the end of the month.
Derived from monthly REALTOR® Confidence Index. Results
for August are based on 3,360 responses to 6,000 surveys sent to
large and small real estate o;ces. The survey asks practitioners
to indicate whether conditions are strong (100 points),
moderate (50), or weak (0). Some data may be revised
from previous issues.
Inventory remains tight, especially at the middle and lower price points. That trend
reflects fewer distressed sales and steady appreciation, hurting a;ordability. First-time
buyers are lagging and, in a shift, investors are starting to retreat from the market.