If Higher Rates Sank U.S. Home Sales, Will Lower Ones Save Them?

(Bloomberg) -- Economists, for the most part, blame the U.S housing slowdown on this year’s jump in mortgage rates. Now that borrowing costs have slipped back to a three-month low, will sales rebound? We’re about to find out.

The average rate for 30-year fixed mortgages fell to 4.63 percent in the week through Thursday, the lowest since early September, according to a Freddie Mac survey. It’s down from 4.94 percent a month ago, when rates hit a seven-year high.

Would-be buyers have been taking their time or opting to remain renters, especially in expensive cities where higher rates and rapidly growing home prices have combined to reduce affordability. The average rate for a 30-year loan was about 4 percent at the start of the year.

“It’s a useful test case for housing demand,” said Robert Dietz, the National Association of Home Builders’ chief economist. “We should see some stabilization in the pace of sales. The concern would be if we don’t -- then other factors are at play.”

If sales don’t improve in coming months, buyers might be losing confidence in the economy, he said. On the other hand, if demand increases, it’s likely to be temporary. Rates for 30-year loans will reach 5.25 percent by the end of next year, Dietz projects.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editors responsible for this story: Debarati Roy at droy5@bloomberg.net, Christine Maurus, Dan Reichl

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