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What would happen to mortgage lending if interest rates doubled?

The four years between 1977 and 1981 witnessed the most dramatic increase in mortgage interest rates in the last 50 years. At its most extreme point in 1980, mortgage rates experienced a 50% year-over-year increase. Considering this historical context – is the housing market today as sensitive to mortgage rate increases as it was 40 years ago? How would a significant increase in the 30-year, fixed-rate mortgage rate impact the housing market today? In fact, using our Potential Home Sales model, we doubled the mortgage rate from its current value of about 4.4% to approximately 9% and the market potential for home sales declined from the current value of 6.1 million SAAR to 5.8 million SAAR. For the month of February, First American updated its proprietary Potential Home Sales model to show that: Potential existing-home sales decreased to a 6.1 million seasonally adjusted annualized rate (SAAR), a 0.02% month-over-month decrease. The market potential for existing-home sales increased by 4.3% compared with a year ago, a gain of 253,000 (SAAR) sales. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. Our potential home sales model measures what we believe a healthy market level of home sales should be based on the economic, demographic and housing market environments. About the Potential Home Sales Model Potential home sales measures existing-homes sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and U.S. population demographic data, income and labor market conditions in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market.