Photo: Taber Andrew Bain/Flickr
Mortgage rates on newly built homes increased in December, according to data by the Federal Housing Finance Agency (FHFA). Simultaneously, new home sales saw a decline in the same month sparking concern over the effect of rising interest rates on sales.
The contract mortgage rate on purchases of newly built homes rose 19 basis points in December, following an increase of 5 basis points in the previous month. As 2016 drew to a close, the contract mortgage rate was 3.78 percent.
Over the course of 2016, mortgage rates began at a year high of 3.94 percent and fell to a year-low of 3.54 percent in October. In November, the rate increased again to 3.59 percent, before settling in at the year-end rate of 3.78 percent in December.
At the same time, sales of new construction homes declined 10.4 percent month-over-month in December 2016. The rising mortgage rates coupled with declining home sales has caused some concern and speculation that the two events are directly related. The impact of rising mortgage rates on home sales “will be evaluated in the coming months,” says the National Association of Home Builders (NAHB) in a digital release.
And while NAHB has asserted in the past that rising rates could have a “small impact” on home sales, often because other economic factors also have a direct influence, a more rapid increase in rates in a short period of time may have a larger impact on sales.
Also worth considering is how much a mortgage spike can affect home prices. According to Black Knight Financial Services, December’s rate increase drove the average resale home up $16,400. And as a result, the median-priced home now costs 21.6 percent of the median household income per month — the highest since June 2010, when rates were 4.75 percent but average home values were about 20 percent less than they are today.
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