Home Sales Soar as Mortgage Rates Edge Higher

Existing home sales rebounded sharply in September from a dip in August, to a seasonally adjusted annual rate of 6.29 million, according to the National Association of Realtors (NAR).

Sales were strong across all four regions, but they remained below last year’s level of 6.44 million. (See Insiders’ Hot Stocks on TipRanks)

Buyers Rush into Low Mortgage Rates

The rebound in September sales comes at a time mortgage rates have been edging higher.

For instance, the 30-year fixed mortgage has risen from 2.75% in August to 3.05% by the end of September.

There are good chances that these rates will head even higher as the Federal Reserve begins its tapering program in the next two months.

“Some improvement in supply during prior months helped nudge up sales in September,” said Lawrence Yun, the NAR’s chief economist. “Housing demand remains strong as buyers likely want to secure a home before mortgage rates increase even further next year.”

Home Prices Continue to Climb

Home prices continued to climb in September, reaching a median of $352,800, up from $311,220 in September 2020.

That’s a 13.3% increase, and the 115th month in a row of year-over-year growth.

“As mortgage forbearance programs end, and as homebuilders ramp up production – despite the supply-chain material issues – we are likely to see more homes on the market as soon as 2022,” said Yun.

Headwinds

While higher mortgage rates have been a tailwind for home sales, as buyers rush to lock in a low rate, it will eventually become a headwind by making homes more expensive.

Then there’s the affordability issue. As home prices climb, it becomes more difficult for new buyers to come up with the down-payment required by banks.

“First-time buyers are hit particularly hard by the historically high home prices as they largely do not have the savings required to buy a home or equity to offset such a purchase,” said Yun.

New home buyers counted for 28% of all home purchases in September, but the situation could change if mortgages continue to climb.

There’s also the employment situation. While the U.S. economy continues to recover, job creation has been anemic, meaning that the number of people who have jobs, and can therefore qualify for a mortgage is rising at a slow pace.

Bottom Line

The housing sector cannot defy gravity. Sooner or later, sales will slow down, and prices will head south.

Those who have been following the housing market for a long time have seen this show before.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.