Rising Interest Rates and Housing Stock

Fleming: “Declining rates generally spur housing starts and expand the housing stock, but more recently we have seen continued increases in housing starts, even as rates have risen, so I don’t think rates are currently strongly influencing housing starts.”

IRVINE, CA—Rising interest rates both encourage people to list their homes before the rates climb too high and discourage people from listing their homes—the difference lies in why owners are selling, First American Financial Corp.’s chief economist Mark Fleming tells GlobeSt.com. The firm’s recent Potential Home Sales model and analysis for February noted that positive economic news is not enough to prevent a slight month-over-month decline in housing-market potential.

According to the report, market potential was down month-over-month in February, but still up from a year earlier. Potential existing-home sales decreased (from February) to a 5.7 million seasonally adjusted, annualized rate. Fleming said, “The housing market’s potential for existing-home sales grew 2.4% over the past 12 months, despite increasing interest rates. Strong building-permit activity and an increasing number of people returning to the workforce helped to increase market potential.”