Housing market improvement could be in danger

by Justin da Rosa12 Jun 2015

The housing market continues to recover, but increased rates could lead to a fall in prices and a drop in home sales, according to the president of a one broker association.

“There are a lot of things at play and I believe the market is improving,” John Councilman, president of National Association of Mortgage Brokers (NAMB) told MPA. “There is the real risk that a rise in interest rates will have a negative effect.”

Despite that risk, a recent uptick in mortgage applications shows Americans are increasingly willing and able jump into the market.

"Mortgage applications to homebuilders declined in May following an improved start to the year,” Lynn Fisher, MBA's Vice President of Research and Economics said in an official release. “Consistent with the intent to complete new homes in time for the school year, applications fell at a similar rate between April and May last year. That said, application volume is 15 percent ahead of the same month last year."

The MBA estimates the seasonally adjusted annual rate of home sales to be 459,000 in May.

However, the gains made year-over-year could all be for naught if interest rates are hiked too soon, according to Councilman.

“There is a real risk that rise in interest rates will staunch the movement of mortgage activity and purchasing,” he said. “So I think that that is something that the Federal Reserve is very afraid of and obviously would like to raise interest rates but is concerned that there is going to be a possibility that they could cause the purchase activity and house prices to start to decline.”

Originators may experience some increased activity, as potential homebuyers flock to get ahead of a rate increase. Though no one is quite sure when that increase will happen.

“I watch the experts and there are three camps: The ultra-aggressive say they should do it in June but there aren’t too many on that page. There are others that believe September is a great time period for it; but I would say there is nearly consensus before the end of the year, barring some major reason not to do so.”

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