Fannie Mae still believes that higher mortgage rates won't hurt the Vero Beach housing recovery. After looking at mortgage rates going back to 1990, Fannie Mae's researchers came to the surprising conclusion that while rising rates were likely to hurt the number of home sales, they had virtually no impact on actual home prices.
The study, which compared historic mortgage rates with home price and sales data, focused on two time periods when rates soared. The first, from October 1993 through December 1994, when rates rose to 9.2% from 6.8% and the second from October 1998 to May 2000 when they climbed to 8.5% from 6.7%.
During the rate spike in the early 1990s, home prices leveled off, then fell only slightly. During the second rate climb, there was no impact on homes prices at all.
Common Theme of Vero Beach Housing Recovery
The common theme that seems to keep the Vero Beach housing recovery from being adversely affected by higher rates is, sellers are reluctant to lower prices, and buyers tend to find ways to stretch their resources, often switching to adjustable rate in lieu of higher fixed rates.
In addition, rates and home prices both track economic trends. When the economy is hot, rates rise and so do hiring and income, which means more people are able to buy homes and pay higher prices for them.
Fannie's research may shine some light on what will happen to the Vero Beach housing recovery in the months ahead, but some housing experts are skeptical.
With rates for 30-year mortgages spiking by more than a percentage point to 4.51% since early May, some economists say rates will most definitely have an impact on home prices and, ultimately, the Vero Beach housing recovery.
While higher interest rates may affect the property a buyer buys, it usually does not prevent them from buying altogether. That thinking doesn't mesh with some economists who believe the dynamics of the Vero Beach housing recovery is that it affects home sales first and then inventory increases. When supplies go up, prices must go down.
Time will tell whether these higher rates will have any adverse effect on the Vero Beach housing recovery. We'd love to know… if you're in the market to buy a home, do higher rates cause you to pull out of the market, or just change the type and price home you're considering? Leave us your comments on this below…