Tuesday
July 29, 2014

Rising Rates Won't Put Housing Out of Reach

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Rising Rates Won't Put Housing Out of Reach

Rising mortgage rates are not yet jeopardizing housing affordability, according to a new report by Goldman Sachs that found affordability still far above past average levels. 

“For a mortgage interest rate of 3.81 percent, the average home buyer can afford to buy a house worth $279,000—45 percent above the current median sales price of existing homes,” according to the Goldman Sachs report. “Even if mortgage rates continue to increase from here, the median home will still be affordable to the median borrower, based on the conventional 25 percent debt-to-income threshold.” 

Goldman Sachs researchers say that from 2014 to 2016, they expect housing prices will increase about 4 to 5 percent each year.

"As a result, rising interest rates will likely slow the strong house price appreciation observed over the past year, but the impact will likely be modest, given the cushion provided by the high level of housing affordability at present," according to the report.

Lennar CEO Stuart Miller echoed those findings on CNBC. He said that slight increases in rates “are not going to stop the progress forward.”

In fact, he says that housing still has a long way to go to catch up to population demands. He estimated that the nation needed to construct about 1.25 million to 1.5 million homes over the past few years to meet population growth demands, yet less than half of that—only about 500,000—were actually constructed. 

Source: “Home affordability not yet impacted by rising mortgage rates,” HousingWire (June 5, 2013) and “Rising Interest Rates Won't Stop Housing Recovery, Group Says,” CNBC (June 5, 2013)

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