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Regarding housing affordability, higher mortgage rates, and the recovery

Housing “affordability” has been one of the key selling points for the real estate market over the past few years. Low mortgage rates and low home prices widened the base of eligible borrowers, and as the economy improved, families felt more comfortable pursuing homeownership.

As sales increased, inventory depleted, and prices began to rise. Then mortgage rates hit a stumbling block – the 30-year fixed has jumped by between 1.0% and 1.5% over the past year – and the current real estate environment is a bit less friendly.

Still, the market has a great deal of momentum. Home prices are up 10.1% over the previous year, according to the S&P/Case Shiller index. On the high end, Las Vegas (+24.9%), San Francisco (+24.5%), Phoenix (+19.8%), and Atlanta (+19.0%) grew the most, while New York (+3.3%), Cleveland (+3.5%), Washington (+5.7%), and Boston (+6.7%) had the lowest gains.

Part of the reason why Las Vegas, Atlanta, and Phoenix are showing the most momentum, is because they also had prices fall the furthest. Las Vegas, for example, saw home prices drop 61.7%, and is still 50% off peak even after the gains. New York, on the other hand, didn’t have prices fall as far and so there has been less ground to make up. Prices are about 20% off their “bubble” peak.

Keith Byrd provides statistics for San Luis Obispo County. You can see his statistics dashboard here.

The median home price for single-family residential sales in San Luis Obispo County was $445,000 through August, representing a year-over-year rise of 14.4%. SLO County is beating the national average.

With home prices rising, the question on everybody’s mind  is the effect that mortgage rates will have on the recovery. Wells Fargo CFO Tim Sloan doesn’t seem too worried. He told Bloomberg.com in a recent article:

“We don’t believe that the recent increases in mortgage rates are going to in any way, shape or form snuff out the housing recovery.”

Sloan argues that the demographics of “household creation” and “household affordability” will continue to shore up the recovery, even as the average 30-year fixed rate has jumped 1.2% since May, according to Freddie Mac.

The rate of homeownership in the United States has recently dipped to the lowest level since 1995 – around 65%. Though the rise in mortgage rates has shrunk refinance business, household creation is expected to break from its post-bubble (recession) standstill.

In other economic news, the unemployment rate dipped 0.1% to 7.3% in August despite lower-than-expected jobs creation. Construction jobs were unchanged. Job creation in June and July were revised down 74,000.

Though the unemployment rate is lower, the report was not seen as positive. With higher mortgage rates slowing the housing market, and economic data mixed, will the Federal Reserve continue its full quantitative easing stimulus program into 2014? It is possible, though markets seem to be treating Fed “tapering” as a foregone conclusion.

Mortgage rates ticked down slightly on September 9 after a full week of gains to begin the month. See here.

Written by Central Coast Lending - Go to Central Coast Lending's Website/Profile
805.543.LOAN info@centralcoastlending.com