Despite U.S. housing On a Recovery Path, House-owners feel the Pinch of Rising Mortgage Rates

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Despite U.S. housing On a Recovery Path, House-owners feel the Pinch of Rising Mortgage Rates
Despite U.S. housing On a Recovery Path, House-owners feel the Pinch of Rising Mortgage Rates

Despite U.S. housing On a Recovery Path, House-owners feel the Pinch of Rising Mortgage Rates

Growth in the U.S. housing sector does not necessarily translate into increase in home ownership and increase in the value of the home-builders stocks. In fact, while home prices are rising, the number of new applicants has decreased as mortgage rates are surging higher and there has also been less than the expected growth in home-builder stocks.

The latest figures from the Standard & Poor’s/Case-Shiller index show that single-family home prices in a composite of 20 U.S. cities has increased 0.9 per cent in June on a seasonally adjusted basis. The year so far has seen growth in the sector fuelling hopes that the country had finally overcome its worst housing crash.

However, there has been an increase in mortgage rates, which is discouraging new buyers to own houses. There has also been an increase in borrowing costs to a two-year high which again is a discouraging factor for buyers as it will reduce affordability. The worst affected places are the places such as Seattle and New York which have a dubious record in terms of higher cost real estate.

Experts say that such an anomaly will lead to a more uneven national recovery. The National Association of Realtors admits that contracts to buy previously owned homes have also slid by 1.3 percent last month. For the Northeast it slid 6.5 percent and for West it stood at 4.9 percent. In entirety, for the month of July new-home sales plunged 13.4 percent.

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There has also been a decline in the home-loan applications for purchases which declined 14 percent since the start of May. This happened due to a surge in interest rates which were the highest in two decades. The Mortgage Bankers Association also claims that price appreciation has also slowed down.

Observers view that the increase in mortgage rates is a major contributor in decreased number of new applications for home buying. For instance, fixed-rate purchase loan on a 30-year has 4.51 percent interest rate which was 3.31 percent in November last year.

As there has been an increase in rates on jumbo mortgages in the tune of 4.69 percent from 3.88 percent at the beginning of May, some jumbo borrowers have stepped back from the market. Some other borrowers are trying for adjustable-rate mortgages to keep payments low as they will have to pay higher interests only after five years.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com