August 22, 2013

Spike In Sales Due To, Rather Than Despite, A Spike In Rates

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Commenting on the second-highest level of sales for previously owned U.S. homes in more than six years last month, a former senior vice president at Fannie Mae notes:

It’s not unusual, when you see a spike in mortgage rates, to see a couple months later a spike in closed sales. People saw the beginning of the trend and accelerated their pattern of buying. In all likelihood, within a month or two, you're likely to see the pace of sales slow.

It was at the beginning of June we first noted the average 30-year rate had ticked up to over 4 percent for the first time since 2011, up from an all-time low of 3.31 percent this past November and 3.35 percent this past May. And in July, homes sales in San Francisco spiked to a nine-year high.

As of today, the average 30-year rate is hovering around 4.6 percent, up from 4.4 percent the week before. The rate for a 30-year fixed mortgage has averaged 6.75 percent since 1990, 8.67 percent since 1971.

Sales of U.S. Existing Homes Rise to Highest Since 2009 [Bloomberg]
Fixed Mortgage Rates Tick Up To Near Two-Year High [SocketSite]
Home Sales Spike In San Francisco To Nine Year High In July [SocketSite]

First Published: August 22, 2013 10:30 AM

Comments from "Plugged In" Readers

We all know the fed / markets have plenty of ways to play the market. Not saying this was a manipulative move, however, I suspect that if rates dropped there would be a lot of action. We're still at low rates so any trend in any direction could be interpreted this way. Overall, I'd say that the market is just plain hot and that rates are just a small sliver of the overall story; not the whole story by a stretch.

Here in SF and the greater "prime" bay area, where the inventory is low and demand great; there isn't a heck of a lot would-be buyers can do to take advantage of the low rates or movements. Most buyers I know are very aware of the impact the rates have on their buying power, however, it's not really dissuading them from looking and making offers. Everyone is still getting outbid by significant amounts / percentages.

Of course, cash buyers are not directly impacted by rate changes. There was an article posted in one of the big papers highlighting the significant number of all cash offers. Certainly this is worth of a topic post.

Posted by: eddy at August 22, 2013 11:57 AM

idk; the other way to look at the increase is that it was only relatively recently that banks started loosening lending at all. Prior to this, "no one" really got those previously low low rates, or damn few did. Different picture now, the money is flowing again. Just a coincidence or were banks holding back waiting for a rise?

Posted by: Jose at August 22, 2013 1:06 PM

@Jose: I would guess supply and demand applies to the mortgage market just like any other market.

Posted by: Jimmy (No Longer Bitter) at August 22, 2013 1:46 PM

Be interesting to see:

A- where rates are after the sept Fed meeting, and
B- if rising rates effect SF differently than ROC (rest of country) after Sept.

Posted by: 49yo hipster at August 22, 2013 2:51 PM

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