Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (37343)	8/20/2003 8:09:57 PM
From: EL KABONG!!!	Read Replies (1) \| Respond to of 74559

usatoday.com Posted 8/20/2003 1:24AM - Updated 8/20/2003 1:10PM Mortgage rate rise may slow home price growth By Thomas A. Fogarty, USA TODAY Growth in home prices would slow to below 4% later this year — down from about a 7% annualized pace now — if the housing market responds to the spike in mortgage rates as it has in the past. The average rate on a 30-year fixed-rate mortgage is up a full percentage point since the end of June, to 6.24%. A USA TODAY analysis of housing finance data since 1979 shows that price growth slowed by an average of more than 40% following similar rate spikes. (Chart: Home price deceleration) Real estate industry economists have cut forecasts for growth as mortgage rates have jumped. Mortgage investor Freddie Mac, for example, now foresees an annualized growth rate for the October-December quarter of just 3.1%, revised from 4.4%. For more than a year, economists have predicted strong deceleration in home prices, but persistently low mortgage rates kept price growth strong. "Rising rates will be the catalyst," says Lawrence Yun, forecast economist at the National Association of Realtors. Yun has cut his forecast for price growth. He now expects a 5.9% increase in median home prices this year; 4.2% next. Sharply higher mortgage interest rates push some home shoppers out of the market and inhibit others from bidding up prices. Key findings in the USA TODAY analysis: • Not since 1987 have average rates jumped more than 1 percentage point in a quarter. If the current quarter ends on Sept. 30 with an average rate at or above the current 6.24%, this would be among the seven largest quarterly increases since 1979. • The effect on home prices can be dramatic. When rates leaped by a point or more, growth in home prices slowed by 44% on average in the following quarter. If prices are growing now by about 7%, as recent estimates suggest, that would mean a slowing to 3.9%. • In the 1990s, less dramatic interest rate increases had a smaller effect on prices. Mortgage rates climbed between a half and three-quarters percentage point in six quarters during the '90s. The pace of growth slowed in only three of the following quarters. For the last several years, home prices have been on a tear. Historically, economists expect home prices to rise just a point or two more than general inflation. Under that formula, prices should be growing at well under 4%. Norm Miller, a real estate expert at the University of Cincinnati, says the interest rate increase will have the biggest impact in markets with the highest prices. He says higher rates are unlikely to force a widespread decline in prices. Homeowners typically respond to a thinner pool of shoppers by postponing a decision to sell, and waiting for the market to improve. "I expect a lot of markets are going to flatten," Miller says. KJC