Blog posted On February 26, 2018
Mortgage rates continued to trend upward last week. Heading into the end of February, this week brings some end-of-month reports including, new home sales, pending home sales, and the Case-Shiller Home Price Index.
New home sales make up a smaller proportion of real estate transactions than existing home sales but contribute to economic momentum through the creation of construction jobs and the purchase of building materials. In December, new home construction was hurt by unseasonably cold winter weather and sales dropped 9.3% to a seasonally adjusted annual rate of 625,000 units. The housing market has suffered from a lack of available for sale inventory, and builders are trying to keep up with sustained buyer demand.
The S&P CoreLogic Case-Shiller home price index measures the change in the value of homes involved in two or more sales transactions across twenty major metropolitan areas throughout the United States. Home prices have steadily appreciated for much of the last few years, as inventory constraints push prices up. The index, which lags by one month, appreciated 0.7% from October to November and 6.2% year-over-year. Consistent heated markets, like Seattle and Las Vegas, drove price appreciation gains, followed closely by San Francisco.
Pending home sales measure changes in homes that are under contract but not yet closed. Typically, it takes four-to-six weeks for a contract to close. In December, pending home sales improved 0.5% month-over-month to a level of 110.1. Though mortgage rates are on the rise, most shoppers are not deterred, as rates are still hovering historic lows.
The market is pricing in a March rate hike, though any changes to mortgage rates will be gradual. Mortgage rates are increasing as the general economy improves. Typically, rate hikes are reflective of economic momentum. Even with the forecasted rate hikes, it is unlikely that mortgage rates will experience any kind of drastic spike.