Low Mortgage Rates Supporting Home Price Growth into 2016

October 5, 2015

by Mike Simonsen

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For a while this summer it seemed like everyone expected mortgage rates to climb. However, since a peak in early July, rates have been drifting lower and are back under 4% – less than half their long-term average.

With mortgage rates down from 4.5% a year ago, homebuyers can actually afford 8% more home than a year ago, according to our friends at themortgagereports.com.

mortgage rates
Mortgage interest rates, 30-year fixed loan, across the Altos 20-City Composite, year-to-date 2015.

 

It may be hard to believe, but the US housing market is now well into its fifth year of recovery. Home prices across the US are up another 7% over the past year, raising concerns about affordability for cash-strapped home buyers. If rates rise, that concern gets amplified. If mortgage rates fall however, that would provide another cycle of boost for housing demand.

Long-time readers of this blog will be aware of the striking shortage of homes for sale around the country. The low-supply conditions have lead to consistent price gains as demand has gradually increased since January 2011. Today is no different. Rates under 4% add to affordability and marginally add to housing demand.

To be clear, there isn’t a lot of evidence that small changes in mortgage rates change housing demand profoundly. So the last few months of mortgage rate drop are merely adding a check in the bull-market column for US home prices into 2016.

What does this all mean for home buyers? It might cost you more to buy a home, but with low interest rates, you may actually be able to afford it.

 

 

 

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