Fannie Mae: Rising Interest Rates Won’t Stall Housing Recovery

Although mortgage interest rates are expected to continue to rise gradually for the remainder of the year, the increase will not be enough to significantly slow the housing recovery, government-sponsored enterprise (GSE) Fannie Mae said in its July Economic and Housing Outlook.

Helping to offset the impact of rising interest rates on the market is the fact that unemployment and consumer confidence continue to improve.

What's more, home sales continue at a brisk pace, and home prices continue to rise, despite the sharp increase in mortgage rates during the past two months.

‘We are keeping a very close eye on the effect of rising mortgage rates on the housing market and the economy, but our July forecast is little changed from last month,’ said Doug Duncan, chief economist for Fannie Mae, in a release. ‘We continue to see growth in housing, partly due to an increase in existing home sales as buyers choose to act while rates remain near historic lows.’

Duncan added that with unemployment and consumer confidence improving, ‘we should begin to see a moderate pickup in consumer spending’ before the end of this year.

‘Overall, we expect economic growth to come in at two percent in 2013, but further momentum later this year should help carry growth in 2014 to an above-par pace of 2.6 percent, the strongest since 2005,’ Duncan said in the report.

Fannie Mae predicts that mortgage rates will rise gradually, averaging 4.7% in the fourth quarter. Although about 40 basis points higher than what had been forecast in June, the GSE is still forecasting that house sales will increase by 8% by the end of this year.

Although rising interest rates are not expected to significantly hurt home sales, it will have an impact on refinancings, which are expected to see a marked decline by the end of the year.

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