Key questionsHere are some of the key questions about interest rates that remain to be answered:
- 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.
- 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.
- 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.
- 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.