Mortgage Rates Will Rain on This House Party
Housing indicators suggests strong demand and tight supply, but higher mortgage rates are likely to start showing in the data
By Justin Lahart
An increase in interest rates is making already pricey homes more difficult to afford./ PHOTO: GENE J. PUSKAR/ASSOCIATED PRESSThere is reason to believe that America’s housing market will be able to weather rising interest rates.
That doesn’t mean that higher borrowing costs can’t blow a few shingles off.
The National Association of Realtors on Friday reported that 6.5 million previously owned homes were sold in January at a seasonally adjusted, annual rate, up from 6.09 million a month earlier and well above the 6.1 million economists had expected.
Other measures suggest the housing market continues to do well.
On Wednesday, the National Association of Home Builders said that its measure of builder sentiment remained elevated.
In its fourth-quarter earnings call Thursday, Tri Pointe Homes chief executive Douglas Bauer said that demand for the builder’s homes “has once again accelerated in 2022.”
The strength in housing comes despite an increase in interest rates that is making already pricey homes more difficult to afford.
The average rate for a 30-year fixed-rate loan was 3.92% for the week ended Thursday, according to Freddie Mac, putting it at its highest level since May 2019.
And with the Federal Reserve on course to start raising overnight rates in an attempt to tame inflation, long-term interest rates might only be heading higher.
Indeed, housing’s biggest hurdle still seems to be supply.
Friday’s report on existing home sales showed that there was only 1.6 months’ worth of housing inventory on the market, which is the lowest that figure has ever gotten.
Tri Pointe said that demand for new homes continues to outstrip the supply of new homes in the markets where it operates—a situation exacerbated by the difficulties that builders have faced obtaining necessary materials.
The forces driving housing demand are powerful.
The pandemic has reshaped many Americans’ views about housing, and the push toward suburban living it helped set off remains strong.
Moreover, after more than a decade of underbuilding—a consequence of the housing bust that began in 2005—there is a dearth of available homes.
But it is too early to conclude that the rise in rates isn’t having an effect.
Friday’s existing home sales figures reflect sales that closed in January.
In many cases they were inked earlier, with buyers locking in lower borrowing costs than what prevailed last month.
Moreover, this is a fallow time for home sales—before seasonal adjustment, there was a big sales drop in January from December.
Finally, there have been some tentative signs of weakness.
Thursday’s home-building report showed that traffic from prospective buyers, while still strong, has dipped a bit.
And weekly data from the Mortgage Bankers Association on mortgage applications for the purpose of home buying, which can admittedly be volatile, has softened slightly.
The real test will come in the spring when home sales enter what is typically their strongest period of the year.
An easing pandemic and strong job market set the stage for what could be a good selling season.
But rising rates could make it less good than it might have been.
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