Fannie Researcher: History Suggests Rate Jump Won’t Stop Housing

While there is nothing in history exactly like the current rate rise in the wake of federal officials’ quantitative easing, a report released Tuesday shows a Fannie Mae researcher found, based on examining the closest historical precedents he could, that it is unlikely to quell housing recovery.

“The increase in mortgage rates to date (116 basis points in nine weeks) is not expected to be sufficient to choke off the housing and economic recovery,” said Mark Palim, a VP in Fannie Mae’s economic and strategic research group, in the report.

“History shows that a rapid rise in interest rates tends to have little correlation with home prices,” he said. “Rather, rising rates are more likely to contribute to a decrease in home purchase volume and an increase in the market share of adjustable-rate mortgages.”

Palim believes these trends could be more muted this time around.

“Given the limitations on ARMs under the recently promulgated qualified mortgage rule and the fact that rates on fixed-rate mortgages remain relatively low in historical terms, we may see a more muted increase in the ARM share of the market than in prior periods of rising rates.”