Rising Mortgage Rates Cool Connecticut Housing Market

By Richard Barrington
Local Lender Columnist
Aug 24, 2007
The continued rise in mortgage rates over the past few weeks has led to reports of prospective homebuyers backing out of deals, and may put a further chill on an already cooling housing market in Connecticut.

While rising mortgage rates are a concern for any potential homebuyer, the suddenness of the recent rise might create bargains for alert shoppers, as houses are put back on the market when deals fall through.

Rapidly Rising Rates Disrupt Deals

Mortgage rates hit 6.74 percent in mid-June, as a result of rising for five straight weeks. By comparison, rates averaged 6.15 percent in May.

Rising rates generally have a dampening effect on home prices, but the effect is especially acute when rates rise quickly. The speed with which rates have increased means deals that looked affordable just a few weeks ago now may not meet the homebuyer's budget. As a result, some buyers have to back out of deals that were already in process.

Seller Distress Can Mean Buyer Bargains

What this means is that the seller has to put the house back on the market. Given that timing is often sensitive in real estate transactions, some of these houses will be coming back on the market under distressed circumstances.

In any case, such houses would be coming back on the market in a weakening sales environment. Single-family home sales in Connecticut were down 3.5 percent in April of 2007 compared with April of 2006. Year-to-date through the end of April single-family home sales in Connecticut were down 2.2 percent compared with the same period in 2006.

Throw in a little time pressure on sellers re-entering the market, and this weakness should mean a little more bargaining power for buyers--perhaps enough to compensate for those higher mortgage rates.

Source
Hartford Courant

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.