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Dimensions of a Housing Recovery

by Houston Agent

Are rising interest rates not only good, but indicative of a housing recovery?

All week, we’ve been reporting on the different dimensions of the housing recovery. From housing’s relationship with the greater economic progression of 2012, to positive projections from Frank Nothaft, Freddie Mac’s chief economist, to the continually high interest from Americans in homeownership, it seems like every day presents a new angle of observation for how the housing market, slowly but surely, is determinedly climbing its way out of the economic recession.

And a  recent piece by David Myers of the Daily Herald has presented yet another viewpoint, this one on higher interest rates.

In his Q&A column, Myers was asked whether a buyer should purchase in 2012 or wait, considering the soft nature of home values in the present market. Though Myers did not recommend rushing out and purchasing a home, he did recommend taking anticipatory steps (such as seeking pre-approval for a loan) for a number of positive economic reasons.

As we hinted at before, signs abound for a growing economy and housing market. Resales were at their highest level in five years in January and February, and permits for new construction in February were at their highest mark in three years. Builder confidence, as a result, has risen, and even average prices for new and existing homes have increased, perhaps the best news of all.

All of that positive activity, though, Myers notes, can push mortgage rates higher, and buyers should keep that in mind when shopping for a property. Indeed, the average 30-year FRM, as charted by Freddie Mac, broke 4 percent for the first time in several months last week. So does this mean that the recovery is a topsy turvy one, and that its benefits will squander whatever momentum housing has acquired? Hardly, as Myers points out.

“Traditionally, rising rates tend to push sales lower,” he writes. “But some experts say the recent increase could actually boost activity and prices by prompting more people to jump off the home-buying fence and finally make a purchase.”

And Myers is in good company with that project – the aforementioned Frank Nothaft made similar comments just last week in complementation to Freddie’s data on interest rates. As we reported at the time, the economist argued that higher rates could actually be a boon for housing, the final push some prospective buyers need to go out and buy property.

“When rates tick up, you may see some potential home buyers who have been sitting on the sidelines, suddenly they may get up, as they are concerned that maybe this is the beginning of a trend, and they don’t want to miss out on these 60-year low mortgage rates,” Nothaft had said. “In the near term it can encourage buyers.”

So what do you make of that idea? Could higher mortgage rates be the next step in the housing recovery, and a good thing for buyers and sellers alike?

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