Mortgage interest rates have been increasing in recent weeks and this has raised concerns in the housing sector. There are speculations that the housing recovery could soften as home loans become more expensive for consumers.
In Orlando, the average price of existing home sales has increased 37 percent since the start of 2012. Three factors helped the prices go up. These are low inventory of home listings, increase in demands, and the low interest rates.
Mortgage rates increased and have threatened the housing recovery. The average rate across the nation for a 30 year mortgage went up to 4.46 percent from 3.93 percent last week. This was the largest one week increase since 1987 and the highest mortgage rate since July 2011. This was according to the Federal Home Loan Mortgage Corp.
In Orlando, which was one of the hardest hit housing markets in the nation, an increase in interest rates could stop the housing recovery in various ways. Higher mortgage rates could make houses less affordable. It would also lead to lesser demand for new and existing homes. Equity funds that are purchasing foreclosures would likely seek other investments. This would end the present trend of multiple bidders for each home on the market.
Home builders would also be pressured by higher costs. People would not be trooping to their model units. Homeowners would not be selling their homes and less likely to refinance their existing loans. The increase in rates would cut their purchasing power.
Fed Chairman Ben Bernanke said that housing has an important role in the economic recovery of the nation because of the jobs created in the sector. Higher house prices also increase consumer wealth and bolster consumer spending.
Institutional buyers would slow the rate of their distress sale home purchases once interest rates go up. It would make other investments more attractive. The demand for single family home rental properties would determine whether they would dump the properties they already have or keep them.