New mortgage originations stayed strong through April 2013, reaching levels close to 2007, but the outlook for May and beyond remains highly unclear amidst rising interest rates.
A report released this week by Lender Processing Services showed that originations during the first four months of 2013 was roughly 3.2m versus 2.5m during the same period last year.
Higher figures may not last for the remainder of the year, however, considering risign interest rates. During May and June, months not included in the LPS’ report, interest rates rose from about 3.6% to roughly 4.6%.
This is likely to put a major damper on housing demand. As a rule of thumb, a 1% interest rate increase means a 10% increase in the cost to buy a house, according to a recent report by the Wall Street Journal.
The report cited economists from Bank of America who also said that rates around 5% are still historically low, however. It won’t be until rates reach 6% that housing demand is significantly affected.
The rate of increase will also be a major factor in housing demand, the report said. The faster the rate of increase, the more shock to homebuyers and their willingness to buy.
The affect of interest rates on housing demand will be more clear at the end of July when the National Association of Realtors releases its new homes sales report.