Home Sales Defy Conventional Wisdom

Homes sales and mortgage rates are supposed to be negatively correlated: when one is up, the other is down.

That's not always true. The connection between home sales and mortgage rates has frequently been tenuous. Yes, there are times – like a few years ago – when falling rates spur sales activity. At other times, such as the late 1970s, homes continued to sell despite soaring mortgage rates. Many variables in addition to mortgage rates coalesce to form a home-sales trend.

There is no denying that mortgage rates have trended higher over the past three months.Rates were flat over the past week, but they continue to hold near 2015 highs. Despite rates holding near highs, purchase mortgage activity moved higher. Purchase mortgage applications were up another 1% last week. This pushes the year-over-year gain to 18%.

The trend in purchase applications is particularly welcomed news, and not just for selfish reasons. Recent data point to a more-normalized market, with mortgage-financed purchases supplanting all-cash purchases. This means owner-occupied buyers are becoming more prevalent. We've noted frequently that a normalized housing market is marked by a high percentage of buyers who occupy their properties. A normalized market is also a sustainable market.

As for sales themselves, existing home sales jumped 5.1% to a 5.35-million annual rate in May. The year-over-year gain is encouraging, with sales up 9.2%. We haven't seen this run rate of sales in nearly a decade.

Existing home sales are moving higher despite the headwinds of continually rising prices. The median price for an existing home rose to $228.700, and is up 7.9% year over year. The good news is that rising prices are bringing more inventory to market. Homes for sale increased 3.2% to 2.29 million last month.

Though not quite setting a new multi-year high, new home sale s continue to progress as well. Sales were up 2.2% to an annualized rate of 546,000 in May. This is on top of a 27,000 upward revision in April. Sales gains appear to be motivated by some discounting, though. The median price of new home posted at $282,800, which is 1% lower than a year ago. New-home prices will likely pick up in coming months, given that inventory remains thin at 206,000 units.

To be sure, the correlation between mortgage rates and home sales can be tenuous. But if rates rise a enough, they can retard sales growth. Many market participants are focused on the Federal Reserve. The focus sharpened this past week after Federal Reserve Governor Jerome Powel l said that he sees the Fed raising the federal funds rates this September. What's more, this increase could be supplemented by an additional increase in December.

We've been in the minority opinion on the Fed and interest rates. Given recent economic growth, we are still unconvinced a Fed rate increase is in the cards. But if we are wrong, we think we will be OK. Recent moves in long-rates likely reflect a Fed rate hike. What's more, when the Fed moves to raise rates, the impact will be felt mostly on the short end of the yield curve, with short-term variable rates rising and longer-term rates holding near current levels.

Information provided by Jessica Regan.

Search all Harrisburg PA homes for sale.

When you are buying or selling property in today's Harrisburg PA real estate market, it's important to have confidence in your real estate professional. Don’s commitment as your Harrisburg PA REALTOR® is to provide you with the specialized real estate service you deserve.

When you are an informed buyer or seller, you'll make the best decisions for the most important purchase or sale in your lifetime. That's why Don’s goal is to keep you informed on trends in Harrisburg PA real estate. With property values continuing to rise, real estate is a sound investment for now and for the future.

As a local area expert with knowledge of Harrisburg PA area communities, Don’s objective is to work diligently to assist you in meeting your real estate goals.

If you are considering buying or selling a home or would just like to have additional information about real estate in your area, please don't hesitate to call me at (717) 657-8700complete my online form, or e-mail me at don@donroth.com.