Published on May 14, 2018
When Mortgage Rates Rise, Do Home Sales Decline?
While mortgage rates stayed at historic lows for many years and are, generally speaking, still historically low, they are slowly but surely rising. And, it is impossible to predict whether or not they will make a big or rapid jump but most experts believe that mortgage rates will only continue to rise. This leaves many homeowners and potential homebuyers wondering – when mortgage rates rise, do home sales decline? The short answer is yes, home sales do generally decline when mortgage rates rise, as do home loan originations, but how much of a decline depends on factors like season, economy, market, etc.
It is first important to clarify that if you see a statistic that says that ‘home loan originations’ are declining as a result of rising mortgage rates, that does not necessarily mean that home sales are plummeting. When mortgage rates rise, there are often far fewer homeowners refinancing and that means that home loan originations decline.
With that clarification in place, the short answer still remains somewhat true. Home sales tend to decrease when mortgage rates rise because rising mortgage rates means rising homeownership costs and that may put some potential homeowners out of the market. CNBC explains that right now, home sales are on the decline while mortgage rates continue to increase, “Sales of newly built homes are falling, and the culprit is clear. Homebuyers increasingly can’t afford what they want. Higher mortgage rates, combined with the loss of homeowner tax breaks in some of the nation’s most expensive markets, are taking away buying power. Sales fell in December, when the new tax law was signed, and then again in January, when mortgage rates moved higher. Sales are now at their lowest level since August of last year. The government’s measure of new home sales is based on signed contracts during the month, reflecting the people who are out shopping and signing deals with builders. It is therefore a strong read on current reactions to home affordability. Mortgage rates moved a full quarter of a percentage point higher during January, from below 4 percent to about 4.25 percent. It then took off further from there.” If you are a homeowner looking to sell, waiting could dramatically impact both the sale price of your home and the ability to sell your home if mortgage rates continue to rise. If you have been on the fence and you do not have to wait, don’t wait to sell your home.