After home mortgage rates hit a 45-year low in June (5.21% for a 30-year mortgage, according to Freddie Mac), many thought the great run of rapid growth that the real estate market has recently enjoyed might be coming to an end. As housing prices continued to climb, the average 30-year mortgage rate grew by more than one full percentage point between June and August. For an average single-family home (which cost approximately $256, 000 in July 2003), that would spell a difference of nearly $62,000 in interest over the life of the mortgage.
But potential homebuyers have not been deterred by this summer's interest rate hike. According to the National Association of Realtors, home sales continued to soar during the summer months. Sales of previously owned homes rose 5.1% in July and another 5.5% in August, perhaps because homebuyers jumped in to take advantage of low rates before they moved even higher.
Recent Gallup data reflect the continued strength of the housing market. In June 2003*, Gallup asked Americans whether it was a good time or bad time to buy a house. Seventy-eight percent responded that is was a good time, while only 19% said it was a bad time. In August, rather than lament lost opportunities, Americans responded with virtually identical responses -- 78% said it was a good time and 20% said it was a bad time to buy a house.
Mortgage Rates Still Comparatively Low
Gallup has asked Americans on two other occasions -- both during dark economic periods -- whether it was a good or bad time to buy a house. In 1978, when 30-year mortgage rates averaged 9.2%, only 53% of Americans felt it was a good time to buy a house, while 29% felt it was a bad time. In 1991, when the average 30-year mortgage rate was 9.5%, 67% of Americans thought it was a good time to buy a house and 25% thought it was a bad time. Today's numbers look positive by comparison and suggest that interest rates influence Americans' responses to this question more than the overall state of the country's economy. The data also show that even in bad economic times, Americans generally think buying a house is a good purchase.
Bottom Line
Americans may not expect the current rates, which are still low by historical standards, to last. With both interest rates and housing prices expected to continue climbing over the next several months, Americans may be right in their assessment that now is the time to buy a house. If the expected increases in interest rates occur, optimism about the housing market will eventually decline, and the real estate boom will begin to subside.
*Results are based on telephone interviews with approximately 1,000 national adults, aged 18 and older, conducted on Aug. 25-26, 2003, June 27-29, 2003, March 21-24, 1991, and March 28-30, 1978. For results based on the total sample of national adults, one can say with 95% confidence that the margin of sampling error is ±3 percentage points.
