The market appears to be making a steady recovery as housing sales have risen to their highest levels since 2008, according to the Commerce Department’s latest monthly figures. November’s new home-sales set in at an annualized rate of 464,000, which is 16.6% higher than last year.
For Rhode Island, in particular, this October was a great month as single-family home sales stayed consistent and strong, with sales up 19% and median home prices rising to $204,000 from $200,000 from 2012. Even though the housing market still has a long way to go, the latest monthly figures represented the 13th consecutive month of median price increases. This is great news as analysts believe they are indicative of a full recovery and the momentum should only pick in 2014.
On the other hand, potential home buyers appear to have a growing concern over the recovering economy. Home prices have spiked at the same time that home buyers have finally unleashed pent-up demand since 2008. Analysts are concerned that higher interest rates may hurt demand in 2014.
Senior lecturer in real estate at Harvard Business School, Nicolas Retsinas, foresees a tug-of-war between the prospects of a recovering economy and higher interest rates. In this case, you may be wondering who would win, by which Retsinas states that “…generally, when there is a tug of war between jobs and interest rates, jobs win.” Analysts do believe that rising interest rates may cause potential home buyers who are on the fence to finally take the plunge.
If you’re wondering why mortgage rates have been climbing in 2013, then look to the declining number of home sales within the past year. According to a WSJ article, mortgage rates first spiked in May after the Fed issued threats bent on pulling back its bond-buying program. So in May to September, the average of a 30-year fixed rate averaged at 3.54% for the month, which ultimately dropped home sales by 4% from the prior month of April. Thus creating an inverse effect. When interest rates increase dramatically, demand from potential home buyers drop.
Not to worry, the Feds have showed signs of pulling back from its controversial bond-buying program, beginning this January 2014. Additionally, home sales are considered to be the leading indicator of the strength in the housing market and these past few months are indicative of positive trends ahead.