During this past November, sales on United States homes have substantially increased, reaching an unexpected ten year high. Buyers have been flooding the market, rushing to invest in homes during this current period of low interest rates, especially with anticipated increases in borrowing costs in the near future. The sudden upsurge in home-buying activity may be a result from the strain of rising prices and mortgage rates.
Home sales have “increased 0.7 percent, to an annual rate of 5.61 million units last month, the highest sales pace since February 2007”. Not only have interest rates and borrowing costs driven buyers to invest in homes, but the results of the November presidential election have caused mortgage rates to surge. Looking at the big picture, this increase in sales comes with positive and negative effects on the U.S. economy.
Job gains and the rise in business consumer optimism are driving factors for the sales of homes this past November. However, high mortgage rates might make it harder for borrowers to qualify loans. This is because limited inventory, driven by a downfall in home market lots and skilled labor availability, helps to sustain elevated property prices.
Expecting an increase in inflation due to labor market decreases, the Federal Reserve has been pushing to enforce its plan aiming to “gradually boost short-term interest rates”. While the U.S. central bank raised its benchmark rates for federal-funds, the average mortgage rate has climbed by 0.3% in just one month reaching a high of 3.77% in November. Home supply is becoming even more inadequate as this year comes to an end as U.S. incomes continue to be exceeded by prices and rents of homes on the market.