Mortgage rates are finally ticking up in the US, one year after the US Federal Reserve cut its lending rate to boost the economy as the COVID-19 pandemic arrived, but that is not expected to cool the hot housing market.
While the wider US economy has struggled after states restricted business to stop COVID-19, real estate was one of the few bright spots last year, boosted both by low mortgage rates and the shift toward remote work caused by the pandemic.
“We’ve seen mortgage rates move higher in the past month or so,” Joel Kan of the Mortgage Bankers Association told reporters.
Photo: AFP
The housing market is a key part of the world’s largest economy, and mortgage rates are closely watched to gauge the ease with which Americans can buy property.
They are tied into the wider US Treasury bond market, where yields have been rising in the past few weeks as traders fear that the economy’s improving health could bring inflation with it.
Rates on 30-year mortgages are ticking up and expected to hit 3.5 percent by the end of the year, after dropping in July last year below 3 percent, a low not reached before.
“In that sense, it is bad news for buyers, because now they are facing higher interest rates, higher monthly payments,” National Association of Realtors chief economist Lawrence Yun said.
Mortgage rates have hovered around 4 percent for the past decade, but US homebuyers have seen much higher borrowing costs in the past.
Rates were about 8 percent in the early 2000s, and hit their record-high of more than 18 percent in the early 1980s, according to government-sponsored lender Freddie Mac.
Despite the recent uptick in rates, Yun said they remain “incredibly low,” and predicted that better economic growth that puts more money into Americans’ pockets would help them overcome the increased borrowing costs and push real-estate sales up 15 percent this year.
Even with the expectation that offices would reopen as COVID-19 vaccinations become widespread, some employees could continue working remotely and look for new houses that accommodate that — a dynamic viewed as already boosting sales last year.
Kan said the market is “still looking pretty strong,” adding that mortgage costs are only once component of the decisions that go into home buying, along with finding a property the buyer likes.
Yet as more buyers have closed on homes across the US, supply has grown short, pushing prices up and sending developers scrambling.
Sales of existing homes were up 5.6 percent last year from 2019, their highest level since the booming housing market of 2006, just before the housing bubble burst and the 2008-2010 global financial crisis began.
New homes have also seen brisk sales, pushing prices up from an average of US$384,000 in January last year to US$408,800 in January, a gain of 6.5 percent, according to the US Department of Commerce.
However, as severe winter weather hit parts of the country last month, home construction plummeted, with new housing starts falling 10.3 percent, the department said on Wednesday.
A massive arctic blast last month knocked power out to much of the state of Texas, bringing activity in many industries to a standstill.
The largest drops were in the northeast and Midwest, where the weather was the worst, but the south also saw a decline even as growth continued in the west, as construction firms scrambled to meet the demands of a hot housing market.
The setback would not be permanent, said Ian Shepherdson of Pantheon Macroeconomics, but added that home construction is set to moderate later in the year.
“Starts will rebound strongly in March, but the bigger picture here is that the declining trend in mortgage applications in recent months means that new cycle highs aren’t likely to be sustained in the near-term,” he wrote in an analysis.
Rubeela Farooqi of High Frequency Economics Ltd said that “record-low inventories are likely to support to building activity, especially in the single-family sector.”
However, National Association of Home Builders president Chuck Fowke said that increases in interest rates and costs of lumber and other materials have already caused builders to slow some construction of single-family homes.
Additional reporting by staff writer
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