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Higher rates start to hit home

Friday, August 23, 2013 - 01:48

Aug. 23 - New home sales dropped more than 13 percent in July, a sharp contrast to the recent strength seen in existing home sales, raising new questions about the real world impact of rising rates. Bobbi Rebell reports.

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All that Fed taper talk is finally hitting home. New home sales- which reflect contracts signed after rates spiked- down dramatically in July. Recent data had shown the housing recovery humming along... but the consequences of those higher rates are starting to show. For example- even though final sale prices on houses are still rising- there are signs home sellers are nervous. Trulia Chief Economist Jed Kolko: SOUNDBITE: JED KOLKO, CHIEF ECONOMIST, TRULIA (ENGLISH) SAYING: "Asking prices are a great leading indicator where sales prices are going. Typically, asking prices are set in the market a couple months before sales end up closing so we are seeing the impact of rising rates and rising inventory on asking prices now. They dropped in July. We haven't yet seen this on sales prices, but I expect that the big sales price indexes will show slowdowns or maybe even month over month declines in the coming months." Kolko says Trulia's data shows consumers are nervous about mortgage rates. And the reality is they are spending less- retailers' earnings have been dismal-and consumer confidence is down. And consumers that can't buy- or sell houses- are less able to move- for example- to take a new job. All reasons a hobbled home market is very scary. Michael Gapen, Senior U.S. economist, Barclays: SOUNDBITE: MICHAEL GAPEN, SENIOR U.S. ECONOMIST, BARCLAYS (ENGLISH) SAYING: "It would likely change the view of the Fed stance and what it thinks about tapering or the timing of it. We are not looking for housing to go into a correction of that magnitude but obviously today's number raises that fear." And at the Jackson Hole conference in Wyoming, Fed officials have been warned about the consequences of tightening too soon. The opening paper says that the Fed must maintain an ultra-easy policy to keep the recovery on track.

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Higher rates start to hit home

Friday, August 23, 2013 - 01:48