Fear of Rising Rates Jolts Dow, Not Home Sales

A jump in interest rate may throw Wall Street into a panic, but Southern California home buyers have proven rather fearless in the face of this year’s volatile mortgage rate market.

The surge in home sales this year despite higher long-term interest rates helps explain why few mortgage brokers or real estate agents were fazed much by Friday’s jump of 0.26 of a percentage point in the 30-year government bond yield.

The yields on long-term Treasury bonds generally dictate the rates that consumers will get on their fixed-rate mortgages. The yield on the 30-year Treasury bond Friday rose to 7.19% from Wednesday’s close of 6.93%.

There is concern that a prolonged rise in rates will eventually take its toll on home sales, but few see the real estate market plunging as a result. In May, for example, Southern California home sales rose more than 30% from the same month last year despite higher loan rates.

“In our part of the country there is a lot of pent-up demand for housing, and a lot of people are more focused on getting a good deal on a house than on interest rates,” said Steve Abo, a mortgage broker in Santa Monica.

Mortgage rates have risen in spurts since February as the bond market has reacted nervously to any worrisome signs of inflation. Since dipping below 7% in mid February, 30-year, fixed-rate mortgages have soared well above 8%. Last week, the rate averaged 8.29% with no points, according to a weekly survey by Freddie Mac.

The rate increase has forced many first-time buyers who had barely qualified for a loan to drop out of the market, say agents. But, for now, the rise has actually pushed many people into buying a home before rates go up even further.

In addition, home buyers have taken advantage of lower, adjustable-rate home loans that are easier to obtain than fixed-rate mortgages.

“Even with the sporadic increases in rates, people overall have the feeling that the gloom-and-doom is over and now is the time to buy,” said Joan Wilson, a real estate agent in Mission Viejo.

In June, Pasadena-based Countrywide Home Loans, one of the nation’s largest mortgage lenders, made new home loans worth $2.4 billion, up from the same month last year despite higher rates. A jump in rates “panics [buyers] a little bit, and they rush into buying a home,” said Rick Cossano, executive vice president at Countrywide.

However, Cossano and other mortgage experts warned that the initial rush of home buyers triggered by a rise in rates often ends up hurting the housing market in the longer run. But for now, at least, buyers seem willing to leap over higher and higher rates to become homeowners.

Whittier-area real estate broker James Joseph said his Century 21 office has seen only two deals fall through as a result of higher rates.