Low Mortgage Rates Boost Sales–Even with Limited Supply

The Mortgage Corner

image

Graph: FRED

How is it possible the 30-year fixed conforming rate has fallen again to 4.0 percent for 1 origination point in California, yet has never been below 5 percent before the Great Recession, when mortgage fixed rates ranged from 5 to 10 percent at times?  It has much to do with current economic policies.

This is boosting the housing market and higher homeownership rates. New-home sales jumped to a higher-than-expected 689,000 annualized rate vs. a revised 646,000 rate in April, as millennials in the 30-year old range are snapping up whatever is in the affordable range.

The median price, at $313,000, fell 1.7 percent in the month for a year-on-year decline of 3.3 percent which is a great mismatch with the 14.1 percent growth rate for sales, says Econoday. So even though supply was up 3,000 in the month, relative to sales it fell to a 5.2 months supply in May vs. 5.5 months in April because of the higher sales rate.

image

Graph: Econoday

But pending home sales have been declining, an indication that the housing market may have peaked. U.S. pending home sales declined 0.5 percent to a reading of 105.9 in May, and are at a 5-month low, the National Association of Realtors said Wednesday. An inadequate housing supply is the culprit, even with booming construction.

This is why privately-owned housing starts in May were sizzling as well, at a seasonally adjusted annual rate of 1,350,000, per the US Census Bureau. It is 5.0 percent above the revised April estimate of 1,286,000 and is 20.3 percent above the May 2017 rate of 1,122,000. Single-family housing starts in May were at a rate of 936,000; this is 3.9 percent above the revised April figure of 901,000.

The homeownership rate has risen for 5 straight quarters, with most of the increase from millennials in the 30-year age group, as we said. The first-quarter jump was led by Americans under 35. Their ownership rate, 35.3 percent in the first quarter, was a full percentage point higher than a year ago.

Another sign of sizzling demand is purchase escrow closings are taking less than 30 days on average, according to the NAR. Falling mortgage rates have energized the housing in particular and given younger families a chance to enter the housing market

These interest rates won’t hold for long, even with the Trump trade wars that are causing investors to buy bonds as insurance. It has driven down the 10-year Treasury yield to recession level 2.85 percent. This is a harbinger of tough times ahead with soaring budget deficits also adding to the danger of more financial instability.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Housing, housing market, Politics, Weekly Financial News and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s