Shiller: Rising Mortgage Rates Will Take a Bite Out of Housing

Friday, 23 Aug 2013 08:57 AM

By Dan Weil

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Mortgage rates are moving higher, and that's going to put a damper on the housing market, says Yale economist Robert Shiller.

The Freddie Mac 30-year fixed mortgage rate stood at 4.58 percent Thursday, up from an average of 4.37 percent last month and 3.6 percent in August 2012.

Mortgage rates are moving higher in synch with Treasury yields, which are gaining amid signs the Federal Reserve will taper its quantitative easing soon.

Editor’s Note:
Forbes Columnist: ‘Who the Hell Cleared This?’ (See Shocking Video)

"Home-buying increases are a result of a holdover from Fed stimulus," Shiller told CNBC.

"Once people think that rates are up, there won't be this impetus to [housing] demand anymore," he explained.

Rising rates could particularly depress prices of detached, single-family homes, especially in suburban communities, as "people are not so positive" about home ownership after the housing crisis of 2007 to 2009, he said.

Shiller noted that homebuyers are still reacting to last fall's record low mortgage rates. "It just got people psyched to buy a house. I think that's still going on now."

To be sure, home sales remain strong, at least through July.

Existing home sales soared 6.5 percent in July from June to a 5.39 million annual rate. That's the second highest level since March 2007.

The figures include closings of contracts signed one to two months previously, when mortgage rates began to rebound vigorously.

Some experts expect the strength to continue. "Housing will be an important part of the recovery through the rest of this year and into 2014," Gus Faucher, senior economist at PNC Financial Services Group, told Bloomberg.

"We have a better labor market and improved confidence, so the underlying demand is there."

Editor’s Note: Forbes Columnist: ‘Who the Hell Cleared This?’ (See Shocking Video)

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