Mortgage rates have risen 1 percent or more 10 times in the last 43 years, with little impact on home sales and prices when the economy was also strong. Here is a link to a paper John Burns Real Estate Consulting shared with its clients a few years ago.

Historically, rising confidence, solid job growth, and higher wages have more than offset reduced demand for housing resulting from higher mortgage rates, according to Rick Palacios Jr., director of research at John Burns Real Estate Consulting. When rates rise during a weak economy, home sales and prices get crushed.

Today’s economic backdrop clearly supports continued home buying demand. Confidence among consumers and businesses continues to hit multiyear highs. Job and wage growth remains solid, with an increasing number of workers rejoining the workforce.

Home builders agree. In the company’s survey of 300+ home builders, 85 percent said sales would decline less than 10 percent if rates were to rise all the way to 5 percent. Twenty-nine percent (generally luxury and active adult builders whose buyers are quite affluent) don’t believe sales will fall at all.

Builder stocks typically overreact very strongly to rising and falling rates, so don’t follow builder stock prices to assume what will happen to new home sales and pricing.

For perspective, mortgages rates have increased from 3.78 percent in September 2017 to 4.32 percent in February 2018, equating to a 6.7 percent increase in one’s mortgage payment. Rates rose even more last spring, jumping from 3.41 percent in July 2016 to 4.30 percent in March 2017 (11.5 percent spike in mortgage payment). Despite rising rates, housing had its best spring since 2013 last year, with a strengthening economic backdrop more than offsetting reduced demand from higher rates. All signals point to a similar scenario for builders as we kickoff spring 2018, with rising rates unlikely to ruin housing’s recovery.

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