New Home Sales May Be Hurting from Rising Mortgage Rates

The biggest drop in mortgage rates in the past three years happened just a few months ago, but now that those low rates have started to jump again, it’s causing potential home buyers to back off. The rate of new-home sales fell 13.4 percent last month compared to the total number of sales the month prior. The information was released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). Economists are still hopeful that this drop will not totally reverse the growth our nation has seen of late in the housing market.

In June of this year, new home sales totaled 455,000 while last month’s numbers totaled 394,000 new home sales. When comparing sales month-to-month, this 13.4 percent dip seems bleak, but compare July 2013 new home sales with July 2012 new homes sales, and last month’s numbers are seven percent higher.

People who locked into the low mortgage rates a few months ago may seem like the lucky ones, with the average 30-year-fixed rates currently at 4.58 percent, but economists expect this to change. Sales may have taken a dip, but there are still plenty of potential home buyers ready to make the plunge once those rates dip back down again.

According to National Association of Home Builders Senior Economist Robert Denk, new home purchase statistics may continue to drop over the next few months until the Federal Reserve starts pulling back its stimulus program. Some contend that the problem is with the rate at which new homes are being built, which should be at least 50 percent faster than it is currently, according to economists. Banks are also hesitant to issue real estate loans, which could be a contributing factor in the stall of new home sale growth.