A clarifying note: existing home sales data are based on closed transactions, but the new home sales data reported in this post are based on signed contracts (they are the equivalent of pending homes sales but for new construction). These sales are based on contracts signed in January with rates applicable just a few weeks ago.

Ordinarily, an increase of 1% in rate would not cause a panic but, since rates have been held artificially low since 2009, it represents an increase of over 35%. Rates have increased 70 basis points since January 6th alone and the FED will not be increasing short term rates until next month, likely 50 basis points.

This will undoubtedly slow sales but the problem builders should be focused on is protecting their backlog. Because of supply chain induced construction delays, most have much larger than normal backlogs and most sales were at record high prices.

The fact of the matter is that sales in the backlogs are at risk of being lost because the buyers can no longer qualify for the needed mortgage. If these potentially lost sales can be identified early on, many may be saved. I strongly recommend that builders conduct a thorough review of sales in their backlog to identify these potential losses and work with lenders to avoid as many lost sales as possible.