According to Freddie Mac, the average 30-year mortgage rate is now 3.05%, compared to the all-time low of 2.67% in late 2020. Rising long-term bond yields could lead to even higher mortgage rates in the EU in the not-too-distant future.
“Despite a recent rise in interest rates, the property market remains very strong across the country,” said Stuart Miller, Executive Chairman of Lennar, in the earnings release.
Miller noted that demand is still healthy, in large part because many consumers saved money during the pandemic and boosted their savings with federal government stimulus money.
“The real estate market has proven resilient in the current environment and we expect it will continue to be a major driver of the overall economic recovery,” added Miller.
Rising interest rates are not a problem for buyers, but refi demand could take a hit
The rise in mortgage rates could be a bigger problem for existing homeowners than for first-time buyers or buyers moving from one location to another.
The Mortgage Bankers Association reported Wednesday that while mortgage loan demand this week was down from the previous week, the shift was entirely due to a slowdown in refinancing activity amid rising interest rates.
If you look closely at the MBA data, the volume of mortgage applications made to buy new homes is actually up from a week, up 5% from the same period last year.
“The shopping market has helped to offset the slump in refinancing,” said Joel Kan, vice president of economic and industrial forecasting for the MBA. “The recovering labor market and demographic factors are driving demand despite persistent supply and affordability restrictions.”
The housing market may cool, but it is not falling off a cliff
Still, there are some concerns that the real estate market will inevitably cool off. The latest building permits and construction starts for February could be a warning sign.
The government reported Wednesday morning that permits and launches were down more than 10% last month compared to January. The decline could be due to winter storms and unusually cold weather in the South and Midwest.
Barclays economists said in a report on Wednesday that February data “suggests significant adverse weather effects on launches that we believe are temporary and expected to unwind in the coming months”.
Nevertheless, the trend can be observed.
“The weather clearly played a role, but it probably wasn’t the only factor,” Jefferies’ financial economist Aneta Markowska said in a report on Wednesday. “The best months for housing construction are now probably behind us.”
Markowska added that there is a silver lining: a slowdown in the real estate market is unlikely to affect the overall economy right now.
“There is a lot of support for other industries, particularly consumer demand and manufacturing,” she noted.
In other words, this is not 2008 again.