Home Sales Rise, So May CD Rates

The fact that home sales rose in 45 out of 50 states in the third quarter may, eventually, mean that interest rates on CDs, savings accounts, and money market accounts are headed higher.

The connection between higher home sales and higher deposit rates is far from a taut equation, but think about it for a second:

Who–and, perhaps more importantly, how are a large percentage of new home sales being funded right now?

The answer as to how can be seen as two-fold:

1. In the first case, investors, many of them foreign residents, are buying “distress sale” properties at deep discounts.

2. In the other case, first time homebuyers are snapping up reasonably priced homes and taking advantage of low downpayment FHA loans or help with a downpayment from parents or relatives.

These two demographics, just like the young spender and the more mature saver, are connected. Often, the investors purchase the home, fix it up, and attempt to sell it to first time homebuyers.

Just as often if not more often, though, both groups are seeking to retain ownership of the property they buy.

The point of all this, if you’re looking to see CD rates go higher, is that the current dynamic entails more dollars going out of deposit accounts and into hard assets, including good old land in the U.S.A.

Over time, one would think that less deposits available would make deposits more valuable to banks, driving up CD rates.