NAR Sees Interest Rates Climbing to 6% in 2016

Mortgage interest rates are projected to increase to slightly below 5% next year and reach 6% in 2016, according the National Association of Realtors (NAR).

Inflationary pressure will likely force the Federal Reserve System to raise short-term rates in the first half of 2015, said Lawrence Yun, chief economist of the National Association of Realtors. Yun’s comments were shared in a written statement following a forecast presentation given at the 2014 Realtors Conference & Expo.

“The impact of rising interest rates on affordability will be minimal as long as job creation keeps pace,” Yun said. “Furthermore, if the credit box slowly begins to open up, that will also mitigate the impact of rising rates.”

And existing-home sales are also projected to climb.

“The improving job market has consumers feeling more confident, and the rebound in home prices is building household wealth for homeowners and giving them the ability to sell after waiting the last few years,” Yun said.

Existing-home sales this year are expected to fall slightly below 2013, at 5.1 million to 4.9 million, and then are forecasted to increase to 5.3 million next year and 5.4 million in 2016. The national median existing-home price will likely rise 4% both next year and in 2016, Yun said.

But still some conditions will keep the housing market from reaching its full potential, including factors such as inventory shortages in parts of the country and tight lending standards that could be contributing to a recent dip in consumer confidence, Yun said.

While Yun said the new credit scoring calculation announced by Fair Isaac Corp., or FICO, is positive for first-time buyers, he noted that the mortgage insurance premiums are too high in relation to default rates.

Housing starts this year are expected to still come in below the underlying demand of about 1.5 million, with 1 million housing starts projected for this year. New-home sales are likely to total 440,000 in 2014, and increase to 620,000 next year.

“Multi-family housing starts have rebounded back to normal since the downturn mostly due to the strong demand for renting,” Yun said. “On the other hand, single-family housing starts are still lagging as smaller homebuilders continue to face difficulty obtaining construction loans, and some have even gone bankrupt. Single-family construction still needs to increase to alleviate supply shortages and keep up with the pent-up demand.”

Regarding access to credit, Mel Watt, director of the Federal Housing Finance Agency, said there are creditworthy borrowers who have enough income to afford monthly mortgage payments but not a large downpayment and closing costs. And, the FHA will offer loans with “as little as 3% required up front from borrowers.” Fannie Mae and Freddie Mac will also evaluate other financial aspects of a borrower to indicate the borrower’s ability to repay.

Written by Cassandra Dowell

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