U.S. Housing Tough Enough for Another Rate Hike

Worries that the U.S. housing market may suffer the Fed’s first rate hike in a decade should be put to rest, at least as far as Capital Economics is concerned.

On Monday, the international research firm announced that with home purchase mortgage applications reaching a six-year high in December and an improving job sector, the national housing market will be able to withstand the additional 0.25 percent.

An important factor in Capital Economics’ confidence is the fact that despite a higher rate, the current rate of .50 percent is still well below the federal rate historically. This melds easily with the fact that unlike much of the past decade, American incomes are in the black as far as mortgages go. Ed Stansfield, editor at Capital Economics, cited figures from the National Association of Realtors showing that the median income household currently has 160 percent of the income necessary to qualify for a mortgage on a median-priced home.

The firm’s optimism comes in the wake of a surprise downturn in existing home sales in November and a corresponding increase in December. According to Capital Economics, the November drop is most likely due to the new TILSA-RESPA Integrated Disclosure rule, or TRID, which was launched in October to help loan seekers more broadly compare mortgage lenders and products.

Still, while the November dip in existing sales is likely to be a blip, Stansfield said, it is also true that there has been no sustained growth in sales since the middle of last year, a truth that reflects the lack of existing homes for sale.

“While rising housing starts have pushed up, the inventory of new homes, the number of existing homes on the market, has not changed since to the start of 2014, when mortgage applications for home purchase were around 30 percent lower,” he said.

Stansfield also suggested that December’s rise in mortgage applications might have been encouraged by potential buyers getting their applications in before the expected rate hike in the middle of last month; applications for home purchases initially rose but then waned throughout the month. Nevertheless, he said,  “it is encouraging that, taking the month as a whole, applications were at their highest level in almost six years.”

Stansfield’s optimism is no lone opinion. Industry pundits and consumer finance firms have roundly accepted the new rate as beneficial, with some such as Bankrate even declaring that the new rate will spark several side benefits, including increased lending and better interest income for seniors.