The key 30-year mortgage rate broke through the 5 percent threshold earlier this month, faster than most analysts expected.  Rates haven’t crossed that watershed mark for seven years, but what that means for the housing market is more of the same, according to analysts.

Homes sales will stay in a holding pattern – hurt by higher rates but also helped by the strong economy.

“The higher rates will ensure that home sales will go sideways and house-price growth will slow into the low single digits as homebuyers adjust to the higher rate,” said Mark Zandi, chief economist for Moody’s Analytics.  The higher rates will affect would-be home shoppers in high-cost cities the most, particularly out West, Zandi said, but looser credit standards and the strong job market should ease the blow on the market as rates move even higher.

“I expect fixed mortgage rates to rise to a peak of 5.5 percent over the next 12 to 18 months,” Zandi told Scotsman Guide News.

The Mortgage Bankers Association reported this week that 30-year fixed rates with conforming balances averaged 5.05 percent, going over 5 percent for the first time since 2011.

“We didn’t expect to hit 5 percent until maybe later in the year,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.  “So, we got an upside surprise on rates.”

Kan said MBA’s forecast hasn’t changed, though.  The strong economy and low unemployment with wages rising by close to 3 percent will keep homebuyers in the market.

Crossing the 5 percent line will weigh on consumers’ minds, however.

“It is like the stock market, right?” Kan said.  “When you hit certain points, there is definitely sort of a reaction to that.  When we were talking about the 4 percent mortgage rate, there was a lot of buzz around that in the refi world.”

Kan said homebuyers will likely accept the higher mortgage cost, or look at less expensive houses.  “(At) 5 percent, yes, it is going to be another psychological mark, but historically what we have seen is that people looking for homes tend to already have made that decision (to buy),” Kan said.  “Most people don’t change their minds based on a change in rates.”

Higher rates have already slowed the pace of home-price growth.  If the rates remain at around 5 percent, the prices could fall in some California markets, said George Ratiu, the director of quantitative and commercial research for the National Association of Realtors.  Ratiu said it is becoming a matter of simple math in some markets.  A half percentage point increases in rates in high-cost cities adds a hefty increase to the mortgage payment.  Buyers on the margins may not be able to afford that anymore.  The listed prices eventually must come down.

“It is pretty clear that the current rates are likely to push out many buyers in the market, particularly first-time buyers,” Ratiu said.  “Either prices have to come down or incomes have to go noticeably higher to compensate for that.”

San Francisco, Ratiu noted, would be one market where prices could flatten or decline.  A person earning the U.S. median wage can buy less than 1 percent of the homes on the market in that city now.

“You have to get into the $200,000 (earnings range) to get anywhere near half the available listings,” Ratiu said.  “When you compare that to a place like Dayton, Ohio, for example, the $50,000 (earnings) mark gets you access to roughly 50 percent of the available listings.  It tells you the picture is much more severe in California.”

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