June 11, 2015

Interest rate rise could hurt housing

A half-percent rise in mortgage rates takes away about 5% in purchasing power from buyers because buyers almost always buy the maximum they can afford, using contemporary mortgage guidelines.

So on the average new house, every 50 basis points in interest rates equals about $16,000 in buying power -- which on builders, in particular, comes right out of their margins, not as much on sales volume because new home sales volume is already so low. On resales, it simply results in lower sales volume.

Bottom line: The surge in interest rates is a headwind for housing. We saw this movie at the end of 2013, which turned into a demand dip, year over year in 2014. 

via http://www.thestreet.com/story/13176133/2/fear-of-losing-liquidity-and-a-song-to-go-with-it-housing-market-worries-and-a-peek-inside-his-retirement-account-best-of-kass.html