Pending home sales were up more than 6.7 percent over this past month, the largest jump of previously owned homes for sale in more than six years, since the beginning of the Great Recession, according to the National Association of Realtors (NAR). As mortgage rates start to climb – in par with movements and signals that were issued by the Fed – more buyers have become motivated to enter the marketplace before they lose out on the chance to take advantage of some of the lowest rates in home loan history. As the sales streamed on in, interest rates responded by climbing to a two-year high this week.
“The housing market is pretty healthy,” explained Guy Lebas, an income strategist at Janney Montgomery Scott LLC in Philadelphia, in an interview with Bloomberg. “When you buy a home, either new or existing, you’ve got to furnish it. It’s sort of the secondary benefits of greater home sales that support growth.”
Pending sales were down an estimated .05 percent in April, but this seems to matter little considering that just a month and a half later they reached their highest level since December, 2006, according to the NAR report.
The current realtor’s report by NAR reflects a pending home sales increase of more 12.5 percent when comparing May of 2013 to May of 2012.
“Even with limited choices it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher,” NAR chief economist Lawrence Yun said in a statement. “This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand.”
As home interest rates jump back up from historical lows, homebuyers can expect a sharp increase in prices for monthly payments. For example, with the new rate of more than four percent, a homeowner will have to pay a monthly payment average of about $1,500 on a $300,000 home loan, as compared to before interest rates were hiked, where the same loan would have average a monthly payment of about $1,300.
“Interest rates have moved higher and mortgage rates have moved from their unprecedented low point towards more normalized levels,” explained Stuart A. Miller, chief executive officer of Lennar Corp. “While this movement is not a surprise given the improvement in economic conditions and in the housing market in general, it seems that the timing has caught the investor community off-guard and has shaken investor confidence in the overall housing recovery,” he said.