A Good National Housing Market Indicator

With the meteoric rise in real estate values over the past few years, people didn't really give much thought to how or why they were selling their home. They just knew that everyone else around them was selling to make a huge profit, and they wanted to be a part of it. That made sense when things were booming, and there was no sign of slowing down. But now that the market is stagnant, and falling in some areas, people want to know why this is occurring. The easiest, and most accurate answer to the decline in home sales lies within the history of the interest rate.

The real estate "boom" period was fueled generously by the continual decline in the interest rate for mortgages. 30 year, 15 year, it didn't matter because lenders were shooting applications out as accepted left and right. Even bad credit applicants were getting a fair shot as new loans were developed to get them into the market as well with the influx of ARM loans and 50 year loans. But as the Federal Reserve kept inching up their interest rate, soon the mortgage rate followed.

As the borrowing rate goes up, it keeps more and more people away from being able to borrow enough money to own a house. People started retreating from the market and that drove demand down. The housing supply though was continually rising, but as time went on, the demand could no longer meet the supply. Gone were the times that houses would sell within weeks. Now houses sit for months unsold and unwanted, with buyers knowing that if they have the patience for it, they can get a much better deal.

This didn't just affect new applicants. Anyone who signed an ARM loan (Adjusted Rate Mortgage) started to default on their own loans that they had willingly signed for a few years prior. As the rate went up, so did the rates on their loans, and monthly payments started escalating. Some of them had no choice but to foreclose on their homes, and that drove supply up even more.

So the bottom line is that you need to take a look at the interest rate for mortgages over a period of time, and see where the trends are going. If the rate is climbing, the housing market is going to suffer from it. If it starts to decrease, you should be able to see indicators marking the increase in home purchases nationally.