Rising interest rates should not halt economic recovery

Q: I hear people in the real estate industry talking about rising interest rates. What kind of effect do you think this will have on our housing market?

— Sonja J.,
North Las Vegas

A: I think rising mortgage interest rates are one factor that can influence our housing market. However, I don’t think interest rates are the most important factor, and I don’t think they’ve increased to the point where they’re doing much to hurt the local housing market.

Economists, housing analysts and others have been debating this topic.

For example, a recent article in the Mortgage News Daily said the rise in mortgage rates over the past couple of months has been “significant” and “could hamper the housing recovery.” Quoting economists participating in Fannie Mae’s Economic Strategic Report for July, the article said that “home sales so far have been little affected by the spikes.”

As the story said, 30-year fixed-rate mortgage rates jumped more than 110 basis points from the first week of May to the end of June. By mid-July, the average rate on a 30-year fixed mortgage had leveled off to 4.37 percent. As Fannie Mae’s report documented, rates are still near historical lows.

“Mortgage applications for home purchases have fallen about 9 percent since early May, when the rise in rates began,” Mortgage News Daily reported. “However, pending home sales during that same period rose to the highest level in more than six years. Many of those sales, though, are in cash, which means they may be less tied to the rise in mortgage rates.”

The prevalence of cash buyers is a key factor in Southern Nevada, where more than half of all existing homes have been purchased with cash in recent years.

Since more people use a mortgage to buy new homes, rising rates could be a bigger factor for new-home sales. But I think builders and lenders have the ability to adjust by offering incentives to help homeowners.

On July 19, Lawrence Yun, chief economist for the National Association of Realtors, told a room full of local Realtors that he doesn’t see interest rates significantly slowing home sales in Southern Nevada. He cited our high percentage of cash buyers as one reason.

“Mortgage rates of 4.5 percent are fairly attractive,” he said in a July 22 Las Vegas Review-Journal story.

Jeremy Aguero, a principal with local research firms Applied Analysis and SalesTraq, has shared similar sentiments. In a column he writes for Nevada State Bank called “A Positive Outlook,” Aguero said: “While rising interest rates are certainly a concern for the industry, 30-year mortgage rates remain well below their 10- and 20-year averages (5.3 percent and 6.4 percent, respectively).”

NAR President Gary Thomas is also optimistic. 

“Although it’s likely that fewer people will refinance, since they already have low interest rates, banks will still need to make money,” Thomas said. “As a result, they may need to increase loan originations. To do so, there is a very good chance that lenders could ease credit standards away from over-stringency to ensure the greatest number of qualified buyers have access to mortgages.”

Fannie Mae economists are predicting that 30-year mortgage rates could reach 4.7 percent later this year. These same economists predict home sales will rise 8 percent in 2013.

As someone who remembers dealing with double-digit interest rates, I think today’s rates are still appealing.

I also think increasing interest rates may persuade some “fence-sitters” to make a move and buy a home before rates go up again.

Send your real estate questions to me at ask@glvar.org.

Dave Tina is the 2013 president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for more than 35 years. Email questions to ask@glvar.org. For more information, visit www.lasvegasrealtor.com.