Economists' Outlook

Housing stats and analysis from NAR's research experts.

With Higher Mortgage Rates, REALTORS® Expect Slightly Weaker Market Conditions Over the Next Six Months According to NAR October 2018 Survey

With interest rates on the rise, REALTORS® expect the housing market to slightly weaken over the next six months compared to current conditions, according to NAR’s  October 2018 REALTORS® Confidence Index Survey. For the first time since January 2012, the REALTORS® Confidence Index: Six-Month Outlook[1] registered below 50 across all family types: detached single-family homes, 49; townhomes, 42; and condominiums, 40. One year ago, all the values were above 50 (single-family home index, 67; townhomes, 56; condominiums, 53). The sharpest expected weakening is in the detached single-family homes market which accounts for about 80 percent of closed sales. An index below 50 means more respondents expect market conditions to weaken than to strengthen over the next six months compared to current conditions.

In 42 states, the six-month outlook indices compiled from respondents in the August-October 2018 surveys are lower compared to the six-month outlook indices compiled from the August-October 2017 surveys.[2] The lower the index, the less optimistic is the six-month outlook.

With employment still growing strongly and housing construction increasing, albeit modestly, rising interest rates appear to be the primary driving force behind the slowdown in home closings. Higher interest rates negatively affect both would-be home buyers and sellers, as homebuyers have to shell out more for the monthly mortgage and to bring a bigger down payment to the table, while current homeowners who are considering selling their home may find their current mortgage payment more affordable unless they make a bigger down payment. It is worth pointing out that the 30-year fixed rate for mortgages is still low compared to historical levels, including during the period 2000-2008, but rates are now about 100 basis higher from the level one year ago, and the rate increase, along with higher home prices homes, has added about $163 dollars in monthly mortgage payment on a median priced home financed with a 30-year fixed rate and a 10% down payment.

Rate-Lock Effect on Would-be Home Sellers

For some homeowners who may initially have wanted to move, the higher mortgage payment may be enough disincentive for them to stay in their current home. How many current home owners and would-be sellers may not want to move to keep their current mortgage payment?

We can start by looking at the number of homebuyers during 2012 -2013 when mortgage rates were low. There were 6.6 M homebuyers during January 2012-May 2013 when the average mortgage rate was 3.61 percent. According to NAR’s REALTORS® Confidence Index Survey, 20 percent of homebuyers during this period were for investment purpose, so 80 percent or 5.2 million were for primary residential use. According to NAR’s 2013 Profile of Home Buyers and Sellers, six percent of the primary residential buyers who purchased a property in 2012 had an expected tenure of five to six years, or in 2018. Using the six percent ratio on the 5.2 million primary residential buyers in January 2012- May 2013, we get an upper bound estimate of 317,088 homeowners who may decide not to move due to the rate lock effect, which is equivalent to six percent of the 2017 existing home sales. This is an upper bound because the decision to move is related to other factors such as changes in family situation, job relocation, the desire to move to a new school district or to a neighborhood more fitted to the household’s lifestyle or needs, or other reasons.

If current homeowners do need to move for non-financial reasons, they need to put in a bigger down payment so that the future monthly mortgage is about the same as the existing mortgage. Nationally, the “break even” down payment needed is about 40 percent (see Table below) which is still feasible if all the equity gained since 2012 is put in as a down payment on the new home. (Equity calculations: A homeowner who purchased a median priced home in 2012 Q1 at $158,333 at a 30-year fixed rate of 3.92 percent and who put in a 10 percent down payment gained an equity of $92,153, which is 40 percent of the estimated value of that same home in 2012 Q2 of $231,621, with the estimate derived by applying a 42 percent home price growth rate from 2012 Q1- 2018 Q2 using the Expanded Data-FHFA House Price Index (SA) for the US).

About the Realtors® Confidence Index Survey

The RCI Survey gathers information from REALTORS® about local market conditions based on their client interactions and the characteristics of their most recent sales for the month. The October 2018 survey was sent to 50,000 REALTORS® who were selected from NAR’s1.3 million members through simple random sampling and to 9,121 respondents in the previous three surveys who provided their email addresses, with 3,863 respondents. NAR weights the responses by a factor that aligns the sample distribution of responses to the distribution of NAR membership. The REALTORS® Confidence Index is provided by NAR solely for use as a reference. Resale of any part of this data is prohibited without NAR's prior written consent. For questions on this report or to purchase the RCI series, please email:

[1] In a monthly survey of REALTORS®, respondents are asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you conduct most of your business?” Respondents rate conditions as “Stronger” (100), “Stable” (50), or “Weaker” (0) and the responses are compiled into a diffusion index. An index greater (lower) than 50 means more (fewer) respondents reported “stronger” than “weaker” conditions in the reference month compared to the conditions in the same month last year. A higher value of the index in any reference month compared to the value in another reference month means a larger fraction of respondents reported “stronger” conditions in the former period than the fraction of respondents who reported “stronger” in the latter period.

[2] In generating the indices, NAR uses data for the last three surveys to have close to 30 observations. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations.