Are Rising Mortgage Rates Killing the Housing Rebound?

Submitted by Wall St. Daily as part of our contributors program

The housing rebound continues to ramp up at a breakneck pace…

New data shows that home prices in 20 cities jumped 12% from a year ago. That’s the biggest annual rise since March of 2006 (i.e. – before the housing bubble burst).

Plus, sales were up more than 2% in May, and 29% compared to last year.

Trulia’s Chief Economist, Jed Kolko, reveals that rising prices might be short lived, however. Thanks in large part to an increase in mortgage rates: “Rising mortgage rates will help cool down price increases. That’s because as rates rise, housing gets less affordable – and a given mortgage payment can’t support as much house.”

That’s not necessarily the case, though.

Chief Investment Strategist, Louis Basenese, does agree that rates are on the rise. As he said earlier in June, “Four weeks ago, the average interest rate stood at 3.71%. Now it’s up to 4.14%, according to the latest national survey by Bankrate.com.”

But he also pointed out that, as rates started to rise, housing demand wasn’t affected at all! “Mortgage applications actually rose 4.7% last week,” says Louis. “So the higher rates aren’t derailing demand one bit.”

And rising rates aren’t likely to cool demand anytime soon. Why not?

Well, back in 2006, interest rates stood at about 6.5%. And, as you know, that certainly didn’t put a damper on demand at the time.

Of course, the housing market isn’t the only sector to benefit from the boost in home prices…

As real estate value goes up, consumers become more confident and less fearful about spending their hard-earned cash in other areas, too.

As S&P Dow Jones Indices’ David Blitzer says, “Rising housing prices have increased wealth. More people own houses in this country than own stocks, and as home prices go up, people are richer, and they feel richer.”

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