Interest Rates Surge, Housing Starts Up, Mortgage Activity and Home Prices Dip

by |

Following a strong week of economic indicators in housing, the most recent week showed a reversal of fortune. The week in housing includes: soaring interest rates, dipping home prices, and lower purchase activity.

Home Prices Sluggish

CoreLogic reported that home prices declined in October. This marks the 3rd consecutive decline posted using CoreLogic’s data. The year-over-year decline was 3.9% with the month-over-month showing 2.43%. This, of course, considers last year’s tax credit. Bucking the trend and including distressed sales, the following were the largest price gainers; North Dakota (4.61%), West Virginia (3.43%), Vermont (2.59%), Maine (1.97%), and Wyoming (1.93%). The bottom 5 were; Idaho (-15.06%), Alabama (-9.30%), Oregon (-8.50%), Arizona (-8.25%), and Florida (-8.00%).

This trend is expected for November and December’s numbers as CoreLogic’s data lags by 45 days. While we’ve seen some rise in purchase activity over the last few weeks, I doubt it will be enough to impact prices on a significant level. Inventory levels are still too high as are foreclosure rates.

Interest Rates: Steep Rise (AGAIN)

Interest rates have climbed again, jumping 0.22% to 4.83% on the 30-year fixed mortgage, marking the highest rates since May as reported by Freddie Mac. The 15-year fixed also jumped to 4.17% from 3.96%. Rates are now well off their cyclical bottoms and closing in on last year’s rates of 4.94% and 4.38% respectively.

With economic data pouring in showing many sectors are recovering, near-term inflation fears are creeping back into the bond markets. Also, consumer sentiment has risen to a 6-month high, showing people are ready to spend money again. These inflation fears may well be realized as evidenced by inflation (housing excluded).

Mortgage Purchase Activity Reverses

Rising rates started slowing purchase activity as reported by the Mortgage Bankers Association this week. The Purchase Index was down 5.0% when compared to the previous week. Year-over-year the Purchase Index is down 16.6%.  However, the 4-week moving average for the Purchase Index is still up 2.6%.

Refinances were down only slightly last week (0.7) as many people rushed to get loans refinanced before rates rise any further. While the refinance boom may be over, purchase activity is still surprising. An increase of 2.6% over the last 4 weeks might not be enough to stem declining values, but it does show that consumers are more confident about the housing market and the overall economy. If the 4-week moving average maintains positive territory through December, it could signal a stronger start to 2011 over 2010 for the housing market.

Housing Starts: Small Increase

The Census Bureau reported November housing starts increased 3.9% over October to a seasonally-adjusted annual rate of 555,000. This is 5.8% below November 2009’s rate of 589,000. Of the November number, single-family starts were 465,000, 6.9% above October. Building permits issued were up 3% while overall building permits were down 4.0%

Despite the margin of error on the Census Bureau’s numbers being significant (+/- 12%), the trend shows improvements in home-building. The improvements are happening slowly as the industry continues to deal with tough financing issues and cautious consumers.

Final Thoughts and Look Ahead

With many sectors of the economy recovering, consumers are feeling more confident. Year-to-date, the economy has added 87,000 jobs per month(on average). That number is still low when compared to past recoveries, but nonetheless signals an improving economic picture. Unfortunately, this new found confidence is causing inflation fears. These fears are triggering higher interest rates and ultimately higher borrowing costs for real estate investors. For now those who are investing for buy-and-hold will need to adjust their cost of money when analyzing deals. Those who’ve been waiting for prices to fall further may see the cost of financing now being a barrier to entry. This week we’ll see key data on November’s existing home sales, the FHFA House Price Index (October numbers), new home sales from the Census Bureau, and Q3 GDP numbers.

About Author

Ryan Hinricher is a Real Estate Entrepreneur, Blogger, Change Advocate and Founder of Investor Nation, a concierge realty and real estate investment company focused on the needs of the residential investment home community.


  1. very nice to hear that about the 87K jobs per month. sure, not a huge number, but a slow and steady recovery would probably earn back more consumer confidence than would a really dramatic boom.

  2. NEW YORK ( — Existing home sales picked up steam in November, though they are still down nearly 30% from this time last year.
    Sales of previously-owned homes jumped 5.6% in November to an annual rate of 4.68 million, the National Association of Realtors reported Wednesday. The report came in slightly better than expected. A consensus of experts surveyed by had forecast an annualized sales rate of 4.65 million.
    Despite low home prices and mortgage rates, the housing market has continued to struggle through the recovery.

    Buyers who have been sitting on the fence, now is a good time to buy. There is a large inventory, prices may have bottomed, favorable appreciation may be near.

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here