With Mortgage Rates climbing and expected to rise further, this is a good time to look at how home sales might be affected. The news is not good — however it is too soon to panic because no one expects rates to surge to stratospheric levels. Most of the time home sales fall as mortgage interest rates rise and vice-versa. The period of the housing boom and bust, 1997 to 2012, was an exception as irrational exhuberance and then irrational fear replaced economic logic in the housing market for about 15 years.
The chart shows this. Mortgage interest rates, the red line, as shown on the right hand scale with the scale inverted so that the line rises when rates fall. This is done to make it clear that new home sales (blue line) moves with mortgage rates. These two data series extend back to 1971. The housing boom bust was an exception: When home sales surged to a peak in 2006 mortgage rates weren’t falling and when home sales collapsed, mortgage rates were falling, not rising. The green line is existing home sales showing data since 1999. Until foreclosuures became rampant, existing home sales were consistenty about five times the number of new home sales. So that both new and existing home sales can be shown together, the existing home sales figures are divided by 5.0 — from 1999 to about 2007 — the two series track closely. Beginning in late 2007, existing home sales began to recover wbile new homes sales continued to lag. Some of this may be purchases of foreclosed homes or short sales. A gap between existing and new home sales opened (between the green and blue lines on the right) which hasn’t closed. (click on chart for a larger image)