A handful of real estate data this week essentially revealed who's winning in the current real estate market.
It's certainly not homebuyers who are choosing too few buying opportunities with prices that are still high and mortgage rates rising. They aren't vendors, many of whom aren't even in the game yet. Those who are there are not in the lead either, because at some point they will become buyers.
The winner – or the winners? The house builders.
An imbalance between supply and demand – caused by the ups and downs The evolution of mortgage rates since the pandemic began has been a boon for homebuilders.
And they know it too.
Home builder confidence finally moved into positive territory this month for the first time in 11 months, according to the National Association of Home Builders. Expectations for current sales and sales six months later were also positive.
“On the resale side, inventory is so scarce that buyers are being forced to pay the premium for new versus resale because there just isn't much that they want,” said Jeffrey, chairman, president and CEO of KB Home Mezger said at the developer's investor conference this week, “So we're pretty happy.”
KB Home (KBH) was the latest home builder to report better-than-expected quarterly earnings and more upbeat guidance, following the same path as DR Horton (DHI), PulteGroup (PHM), Toll Brothers (TOL) and Lennar Corp. (LEN). )
That enthusiasm has led to even more shovels being dug into the ground.
According to government data released this week, single-family housing starts rose 18.5% in May from April to a seasonally adjusted annualized rate of 997k. Building permits for single-family home construction rose to a seasonally adjusted annual rate of 897,000 units, up 4.8% from April.
“We didn't see that level in the 10 years leading up to the pandemic,” Lawrence Yun, chief economist for the National Association of Realtors, told Yahoo Finance Live (video above). “So the construction companies are picking up speed. Your profits will increase.” . And there is a financial incentive to produce more.”
These homes are badly needed, especially as the current owners have cheap mortgages. Why would you want to sell and then buy another, more expensive house with a mortgage rate twice as high?
The numbers say it: Virtually all homeowners with a mortgage have a current mortgage rate below 6%, Redfin reported last week. About four in five homeowners with mortgages have an interest rate below 5%, and almost a quarter have an interest rate below 3%, likely reflecting refinancing during the pandemic when interest rates hit an all-time low.
Though the number of condos on the market rose to 1.08 million units in May, that's still below the pre-pandemic norm of 1.9 million homes, according to the NAR's release on existing home sales. The total was the lowest since records began for the month of May.
Redfin also noted that the number of homes for sale in the US hit a new low in May, according to new data.
“The tight inventory environment has been a tailwind for new home sales,” James Egan, strategist at Morgan Stanley, wrote in a note to clients on Tuesday. “In fact, new home sales accounted for the largest portion of all transactions in the first quarter of the year since 2006.”
More good news for homebuilders: Egan revised his forecast for home prices and expects no growth for the year, down from a 4% decline previously expected.
But there is hope for potential buyers of existing homes: mortgage rates are showing signs of falling.
Freddie Mac (FHL.SG) said rates have fallen over the past three weeks – to 6.67%. And this week, Realtor.com revised its mortgage rate forecast, projecting that the average interest rate on the 30-year fixed-rate mortgage will average 6.4% year-round and reach 6.1% by year-end. That's down from the previous estimate of 7.4% for the full year and 7.1% at the end of the year.
So would 6% be enough to revitalize the resale market?
“There's no magic number because it's probably different for every homeowner,” Mark Fleming, chief economist at First American Financial Corp., told Yahoo Finance. But “it's likely that interest rates would need to be much closer to 5% than 7% to reduce the financial penalty for most homeowners from fixed interest rates.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv. Gabriella Cruz-Martinez is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz. Janna Herron is the personal finance editor at Yahoo Finance. Follow her on Twitter @JannaHerron.
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