Can a 1% Hike in Mortgage Rates Really Stall Housing?

Interest Rates and House Prices

Last week's jump in mortage rates was the largest jump in 26 years from 3.98 to 4.46 – while adding to the cost of buying a home in San Diego. If you didn't catch the article…. below, the Union Tribune's housing panel discusses the rate increase on the local San Diego housing market and if the 1% hike in mortgage rates really will stall housing:

Michael Lea – Director of the Corky McMillin Center for Real Estate at SDSU: Yes and No. The 10-year Treasury bond yield, which underlies the 30-year mortgage rate, has risen by nearly 1% over the past six weeks without significally slowing the housing market. While housing is not in bubble territory, it is prudent to wean the market off abnormally low rates. Rising rates will slow investors demand, which may be good for the long-term market stability.

109163890-300x200Murtaza Baxamusa – Directs planning and development for the Family Housing Corporation at the San Diego Building Trades: No. A percentage point increase in interest rates in a year will cost about $200 more per month in mortgage payments for a median-priced home, which is about $406,000 in San Diego. Despite the recent spike in interest rates caused by the announcement of the Fed's withdrawal of the stimulus, the increase in the cost of borrowing is eclipsed by the more rapid increase in the cost of homes themselves.

Linda Lee – President of the San Diego Association of Realtors: No. A 1% increase for a rate would still be very attractive. Raising the rates might push some potential homebuyers out of the market. But it also might encourage more lenders to re-enter the market, which would loosen up the lending guidelines that potential buyers may face. Many people with credit scores as high as 720 can't get approved for a loan because of such tight restrictions. A slight rate increase could spur lending and buying.

Marco Sessa – Chairman of the Building Association of the San Diego County and Sr. VP of Sudberry Properties: No. Positive consumer confidence and the lack of housing supply are the main drivers of increasing home values. An increase of 1% in interest rates will not change the limited supply; although, it is more difficult to ascertain the impact it may have on consumer confidence and therefore the demand for housing.

Robert Vallera – Senior VP of Volt Real Estate Services in San Diego: No. While the travsaction volume would not completely stall, prices would likely flatten out. Some fence-sitting buyers might finally make acquisitions to lock in a mortgage at a rate that could still prove to be very favorable in the long run. However, the higher the rates would require most buyers to reduce their maximum purchase price, taking the steam out of the recent price escalations.

Kurt Wannebo – Real Estate Broker and CEO of San Diego Real Estate and Investments: No. Stall is defined as "to bring to a standstill," which wouldn't happen. What it would do is diminish the purchasing power of a homebuyer by about  $50,000. This would definitely start bringing home prices back down and slow the rapid increase in prices.

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