Are Higher Mortgage Rates a Threat to Home Prices?
February 10, 2011
SAN DIEGO (ETFguide.com) – Ever since the Federal Reserve unveiled its $600 billion plan to curb interest rates from rising, interest rates have rebelled and risen. The 30-year fixed rate mortgage has also gone up and at 5.12 percent is now at its highest level since April 2010.
Thus far, the performance within industry sectors closely linked to consumers and the residential real estate market has shrugged off the threat of higher rates.
Stocks in the homebuilding sector (NYSEArca: XHB) are ahead 6.27 percent year-to-date after posting an impressive 17.40 percent gain in 2010. Likewise, the iShares FTSE NAREIT Residential Plus Cp ETF (NYSEArca: REZ), which focuses on publicly traded apartment owners, managers and developers has gained 45.58 percent over the past year. Since the beginning of the year, REZ is ahead by 3 percent.
Rising mortgage rates on the backdrop of a still weak job market is definitely not good news and will only make the cost of home ownership more expensive for consumers.
Conclusion: While no one knows the future for home prices, rising mortgage rates are hardly the recipe for a recovery.