Economic Reports, Mortgage Rates, The Economy

Retail Sales Report Drive Mortgage Rates Sharply Higher

March 15, 2012 by · Leave a Comment 

Retail Sales 2010-2012The U.S. economy is expanding, fueled by a renewed consumer optimism and increased consumer spending.

As reported by the Census Bureau, Retail Sales in February, excluding cars and auto parts, rose 1 percent to $335 billion as 11 of 13 retail sectors showed improvement last month.

February marks the 19th time in twenty months that U.S. Retail Sales increased on a month-over-month basis. Retail Sales are also up 6 percent from a year ago.

Unfortunately, what’s good for the economy may be bad for Indiana home buyers and mortgage rate shoppers. Home affordability is expected to worsen as the U.S. economy improves.

Click here to see today’s mortgage rates.

The connection between Retail Sales and home affordability is indirect, but noteworthy — especially given today’s economy.

First, let’s talk about affordability.

Last week, the National Association of REALTORS® released its monthly Housing Affordability Index, showing that homes are more affordable to everyday home buyers than at any time in recorded history. For buyers with median earnings buying median-priced homes, monthly payments now comprise just 12.1% of the monthly household income.

The real estate trade group considers 25% to be the benchmark for home affordability. Today’s payment levels are less than half of that.

Click here to see today’s mortgage rates.

The reasons why today’s homes are so affordable are three-fold :

  1. Home prices remain relatively low as compared to peak pricing
  2. Fixed- and adjustable-rate mortgage rates remain near all-time lows
  3. Average earnings are increasing nationwide

Rising Retail Sales can derail the trend. This is because Retail Sales measure consumer spending and consumer spending accounts for roughly 70 percent of the U.S. economy. As the economy expands, the forces that combined to raise home affordability so high begin to wane. 

First, mortgage rates tend to rise in a recovering economy and home prices are expected to do the same throughout 2012 and 2013. Second, as average earnings increase it can spur inflation which is bad for mortgage rates. 

Home affordability is at all-time highs today. But, in part because of February’s Retail Sales data, we should not expect these levels to last.

Mortgage rates are higher by 1/4 percent since the Retail Sales data was released — roughly $16 per $100,000 borrowed — and are expected to rise more throughout the spring home purchase season.

Click here to see today’s mortgage rates.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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