In a potential harbinger of things to come, new home price increases slowed in the second half of last year as mortgage interest rates rose. Housing economists expect mortgage rates to rise for at least the next two years as the Federal Reserve reduces its bond buying.
The average rate on a 30-year, fixed rate mortgage rose by a full percentage point during 2013, finishing at 4.35 percent, according to data on conforming mortgages kept by Freddie Mac. Most of the increase came in the second half of the year, when new-home price increases slowed.
New home prices, which were rising at double-digit rates during the first half of the year, slowed to single-digit growth in the second half. Between June and August of 2013, mortgage rates rose by half a percentage point. In the month of August, housing prices barely budged, rising by less than 1 percent.
Most housing forecasts call for further increases in mortgage interest rates during 2014, which will put pressure on builders to temper price increases and give financial leverage to buyers. The National Association of Home Builders, for instance, expects
fixed-rate mortgages to 4.78 percent in 2014 and 5.62 percent in 2015.