The Ritter & Randolph, LLC Blog

Housing Sales Continue to Decrease—Rising Interest Rates are (Partially) to Blame

Aryeh M. Younger, Esq.A new report by the National Association of Realtors claims that the number of home sales across the U.S. is continuing to decline. The report, cited in a recent article in the Wall Street Journal, claims that existing-home sales have decreased by .6% this past June from the previous month. Even more jarring, housing starts have declined by 12.3% in June from the previous month.

Although the U.S. economy continues to show signs of positive growth (jobless rates are down and the U.S. economy grew at a rate of 4% in the last quarter), the decline in home sales has led some economists to worry. The housing market is largely what drove the U.S. economy into the Great Recession, and it is likewise what brought the economy out of it. Additionally, the housing market contributes to around 15-18% of the nation’s gross domestic product.

The decrease in home sales can be attributed to a number of factors, including higher interest rates for mortgages. As reported in the Journal, Freddie Mac claims that “[t]he average interest rate on a 30-year fixed rate mortgage has risen to 4.57% in June from 4.03% in January.” The increase in mortgage interest rates is due to recent hikes in lending rates brought on by the Federal Reserve. The increase in mortgage rates has caused fewer Americans to buy homes; it has also caused many buyers to purchase less expensive homes.

Over the past months, economists have blamed a lack of supply as the culprit for the decrease in home sales. But rising interest rates and home prices point to a new problem involving a lack of demand.