Even though monthly mortgage payments reached a record high in October, there are still many eager homebuyers, according ton one analyst, who cited the unexpected rise in new single-family home sales in October.
“I think what it tells us is that the underlying demand for housing is still very strong,” John Lovallo, home builder and building products equity research analyst for UBS, told Yahoo Finance Live (video above).
“There is just very, very little existing home supply in the market, only about three months of supply versus the historical average of closer to six. To the extent that people are looking for homes, they’re more inclined to look at a new home and I think those factors are also in play,” Lovallo said.
Many buyers are competing for the few homes for sale because many homeowners are staying in their homes. With soaring mortgage rates at almost 7%, homeowners want to keep their current low mortgage rates.
“If you’re a homeowner, an existing homeowner, and you have a mortgage, chances are that it is below 5%, in many cases below 4%. I think it is forcing a lot of people to sort of stay put,” Lovallo said. “The first-time buyers are still very active in the market, in our view, but in terms of existing home sales, you’re sort of locked in.”
Though it’s hard for many homebuyers to find the right house, Lovallo said there are options for them if they have more flexibility in their search.
“I think what is most important is that you have levers that you can pull,” Lovallo said. “You can move a little further away from the city, and borrow money from mom and dad, you can buy a smaller footprint home.”
Lovallo says that the housing market may finally becomes stable after all the recent volatility. The Federal Reserve raising interest rates caused housing interest rates to grow and the relatively safe 10-year Treasury bond to draw investors. He said that if the Treasury bond stabilizes next year, mortgage rates may fall to 4%.
“If we use our economists’ forecast for the 10-year bond next year, which is 2.65%, that gets you a mortgage rate that’s in the mid-4’s,” said Lovallo. “That it is a possibility that if we can just get some settling in rates, that affordability will be much improved.”
Ella Vincent is the personal finance reporter for Yahoo Money. Follow her on Twitter @bookgirlchicago.
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Source: https://finance.yahoo.com/news/analyst-demand-for-housing-is-still-very-strong-164256870.html