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Mortgage rates have been increasing in 2022 and are already starting to have a negative impact on rate sensitive areas like housing.

Treasury rates have been increasing in 2022 and continued at an accelerated pace in the month of March.  This has carried over into other borrowing markets, including residential mortgage rates.  The increase in mortgage rates has already impacted housing related data through the month of February and will likely have a large impact on March data.  This slowdown in housing data alongside higher borrowing costs could be a sign of things to come across consumer related economic releases.  

Over the last two weeks, several housing related economic data points have slowed.  The National Home Builders survey declined from 81 to 79, the lowest level since September 2021.  Future sales expectations declined to the lowest level since June 2020 and declined by ten points month-over-month (an unusually high decline).

Source: Macrobond.

Existing home sales declined from 6.49 million to 6.02 million, a 7% reduction in sales activity.  Sales were down 2.5% from the same period last year.  Housing starts did increase on a month-over-month basis.

Source: Macrobond.

New home sales declined to a pace of 772,000, a 2% decline month-over-month and a 6% decline year-over-year.  Pending homes sales declined 4% month-over-month (fourth consecutive decline) in February and 5.5% year-over-year.

Source: Macrobond.

Many of these housing related indicators are being impacted by the rise in interest rates and the impact that has on affordability.  Most home purchases by individuals are made based on the expected monthly mortgage payment.  As interest rates increase, the less buyers can afford to borrow for the same payment amount.  This reduces what they can offer on houses for sale.  This usually leads to sellers pulling listings, with the expectation that in the near future they will be able to get the price they initially expected.  If that does not materialize, eventually they will need to lower their price to a level borrowers can afford at the new interest level. 

Since the start of the year, 30-year fixed rate mortgages have increased by 1.35%.  This equates to about a 15% reduction in the amount that can be borrowed today for the same monthly payment on January 1st

Source: Macrobond.

This impact on housing will likely not be the only part of the economy that is harmed by higher interest rates.  Higher borrowing rates will impact other consumer loans and limit access.  This is occurring at a time when income and spending levels are already slowing and will likely slow at a faster rate in the coming months. 

 



 

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