Will rising interest rates weigh on home sales?

(courtesy of USA Today)

Aside from expensive ask prices, nothing turns off a potential home buyer more than rising interest rates, as the higher the mortgage rate the higher the monthly mortgage payment.

Higher rates also impact affordability, as more expensive borrowing costs often force home buyers to purchase a cheaper home or downside from a single-family home to, say, a condo.home-for-sale

That’s why Tuesday’s report on December existing home sales and Thursday’s on new home sales will be watched closely by Wall Street.

Sales of existing homes in the final month of 2016 are seen coming in at an annualized rate of 5.53 million units, below the 5.61 million homes sold in November 2016, according to Bespoke Investment Group. A small drop in December sales of new homes also is seen. Economists forecast 585,000 new homes were sold last month, down from 592,000 in November 2016.

December saw a sharp rise in mortgage rates as investors began to price in higher rates after the Federal Reserve hiked short-term rates for the only time in 2016 at its December meeting.

The rate on a conforming 30-year fixed-rate mortgage climbed as high as 4.45% in December, according to the Mortgage Bankers Association, its highest level since spring 2014.

The big question now: Can an improving economy, more jobs and higher worker pay offset the downside of higher rates on home purchases going forward?

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