GOOD NEWS, HOUSE SELLERS! Panic About Mortgage Rates Is Driving Prices Higher

Chart of the day shows rising mortgage rates, june 2013

CHICAGO (Reuters) – If you’re weary of watching the stock and bond market get dyspepsia over the Federal Reserve’s possible pullback of its easy money policy, turn your gaze to the U.S. home market. Rising interest rates could be a catalyst to boost sales and prices.

In January, the average 30-year mortgage rate, as tracked by Freddie Mac, was 3.34 per cent. In the most recent survey, the rate jumped to 4.46 per cent, up more than half a percentage point from the week before.

While that is still a bargain by historical standards – the benchmark rate averaged about 8 per cent in 2000 – the summer buying season combined with the possible end of the Fed’s easing policy will move millions of buyers into the home market.

Those who are still on the fence about buying a home will be worrying that rates will soar higher. Mortgage rates are still relatively low, so “fear of regret” will push them into purchasing.

Overall, the outlook for U.S. housing continues to improve. U.S. home prices posted the biggest gain in seven years in April, according to CoreLogic, up 12 per cent from April a year ago.

Prices also climbed 12 per cent year-over-year for the 20 major cities tracked by the S&P Case-Shiller Home Price Indices during that month. Pending home sales hit a six-year high in May, according to the National Association of Realtors, the real estate trade association.

Tight supply and pent-up demand have nudged buyers into the market. Higher mortgage rates, which have shot up over the past month, are also motivating buyers to make bids and close sales.

Even more potential buyers may come off the fence: At the current pace of economic and job growth, mortgage rates could hit 6 per cent next year, which could spark even more sales, according to Richard Barrington of

Not every housing market will experience this upswing, though. Prices may not have bottomed out in some areas.


Ideally, the sweet spot for home gains is in a market with robust job growth, healthy inventories and low foreclosure rates. Here are some of the leading markets in that category, according to Local Market Monitor, a real estate information service:

San Antonio, Dallas, Houston and Austin, Texas – Population growth in Texas is more than double the national average, thanks to ample job growth, climate and the energy-industry boom. Houston, San Antonio, Austin and Dallas-Fort Worth all ranked among the country’s 10 fastest-growing cities, according to the Census Bureau.

Homes in the Austin area, for example, have seen nearly 10 per cent appreciation in the last three years and 4 per cent in the last year, according to Local Market Monitor. The city has experienced almost 10 per cent population growth in the last three years. Like many Texas markets, Austin wasn’t impacted by the bubble and has low unemployment, of 5 per cent.

Provo, Utah – Provo’s healthy economy is fueling job growth, which has risen 5 per cent in the past year; the unemployment rate is 4 per cent. That’s translated into strong home price increases: The median home sales price for the area has climbed from about $167,000 last year to $185,000 during the past year through July 1, according to, a property information service.

Fayetteville, Arkansas – Benefiting from the nearby headquarters of Wal-Mart, job and population growth are strong. The short-term outlook is good as metro-area unemployment has trended well below national averages in recent years. The jobless rate was 5.4 per cent in April, compared to 7.2 per cent for the state, according to the Bureau of labour Statistics.


Several markets are still struggling with high foreclosure rates, which depress prices. They are generally “older manufacturing towns with stagnant or shrinking population and continuing job losses,” according to Ingo Winzer, president of Local Market Monitor. “Not surprisingly, home prices in these markets continue to fall.” Some noteworthy laggards include:

Providence, Rhode Island – Providence is suffering from no growth, no new jobs and an unemployment rate of 10 per cent. As a result, both sales and average listing prices have dropped over the past year, reports, an online real estate service. The number of sales dropped nearly 20 per cent year over year through June 19.

Cleveland, Ohio, and Buffalo, New York – Decreasing populations and job losses in these rust-belt cities have hurt housing. These cities experienced several decades of plant closings, and lingering foreclosures hurt prices across the board. Buffalo’s median sales price, for example, has dropped from around $80,000 a year ago, to about $63,000, according to

Augusta, Georgia – Population is growing, but jobs are just barely being added. Georgia was a centre of subprime lending, and more foreclosures are in store. Even though the number of sales has climbed almost 30 per cent, the median sales price is down more than 6 per cent through June 19, according to Trulia.

While you may find some relative bargains in areas hardest hit by the housing crash, don’t forget that employment and the general economy still play a major role. The housing rebound won’t be sustainable if the U.S. lurches into another downturn, which is possible if the Fed’s future moves trigger a slowdown.

(The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see

(Editing by Lauren Young and Leslie Adler)

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