Hanson is predicting a 19 percent jump in contract cancelations for the home builders for sales made between December 2012 and June of this year. That is because 70 percent of homes sold in that time were not built yet, and buyers had not locked in rates. As for the home builder stocks, he said they are, “priced for perfection” according to sales from the past years, but those sales won’t hold up.
The predictions may sound dire, but the forward-looking indicators are falling in line. Mortgage applications have been falling for the past month. Applications to purchase a home are down 28 percent in the past month and up only 4.5 percent from a year ago. They should be up far higher, given that prices and demand are rising so fast. Signed contracts to buy existing homes jumped unexpectedly to a six-year high in May as rates started to rise; there’s your rush.
At a brokers open house in Northern Virginia this week, real estate agents said they are already seeing the effects of higher rates on the ground and in the homes they’re trying to sell.
(Read More: Apartments Reap Rewards of Rising Rates)
“It has gotten a lot quieter, which is a shame because historically the rates are still very low,” said Ruth Griel with Prosperity Mortgage.
“It’s having a kind of chilling effect on the market,” said Mark Beardsley, a Realtor with Long and Foster. “What’s happening is we are pricing down. If they were qualified for 600, now we’re looking at 550 and below.”
Mortgage rates going from 3.5 to 5 percent is roughly a 15 to 20 percent decrease in what the average buyer can afford. They can move to different loan products, like an adjustable rate loan, but ARMs are harder to qualify for and require far more documentation.
Article source: http://www.cnbc.com/id/100876300