This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Could Rising Mortgage Rates Derail The Housing Rally?

Last Tuesday the stock market responded favorably to the latest S&P/Case-Shiller Home Price release, which showed a continuing rally in housing prices. But given the recent trend in interest rates, even this new report may be old news.

The housing release showed a record increase for April, and double-digit gains for housing prices over the past year. Unfortunately, as mortgage rates move higher, it creates a different set of conditions than those faced during that rally in home prices.

Right now, the economy is like a mystery, and reviewing emerging economic indicators is like sifting through clues. Some clues answer questions, while others merely provide hints. As enthusiastic as the stock market and the media were about the latest housing data, this information isn't really current enough to answer any questions -- and there are certainly plenty of questions.

Key questions

Here are some of the key questions about interest rates that remain to be answered:

  1. What impact will higher mortgage rates have on home prices? The Case-Shiller Home Price Index is based on three months worth of data, with the June 25 release comprising data from February, March and April. Current mortgage rates are significantly higher than they were then, so the housing prices being reported now still don't reveal anything about what impact higher mortgage rates will have.
  2. Will higher rates also act as a drag on the economy at large? It's easy for any homeowner to understand how higher mortgage rates could slow down the housing market, and higher interest rates in general can have a similar effect on many aspects of economic activity. Employment growth remains the key: If new jobs continue to come into the economy at a reasonable pace, it will indicate that employers are undeterred by higher interest rates, and that more paychecks will be joining the consumer market.
  3. Will mortgage rates follow bond yields by continuing into higher territory? After a sustained rise, mortgage rates eased back in mid-June, while Treasury bond yields continued to rise. If mortgage rates stop rising soon, the effect on housing should be muted, but if they follow the course that Treasury bonds are leading, it will become tougher and tougher for the rally in home prices to continue.
  4. When will savings accounts see higher rates? Current mortgage rates have already risen enough to affect consumers, but depositors in CDs, money market and savings accounts have yet to see higher rates. Savings accounts and other deposits will probably be the last area to respond to higher interest rates, so when you see banks raise deposit rates, you'll know that the trend toward higher rates has been firmly established.

Some of these questions will take months to be answered, but this Friday's release of the June employment report will at least provide an update on how the economic recovery is surviving the rise in interest rates.


Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs