Economists React to New Construction and Mortgage Rate Reports

Economists this week commented on recent New Construction and Freddie Mac reports.

This rate shows only a slight uptick from the week previous, which averaged 2.86%. When compared to a year ago at this same time, the 30-year FRM was much higher, with an average hovering at 3.73%. Regarding the 15-year FRM, it averaged 2.35%. This was a slight dip from last week’s average of 2.37%, and a dramatic drop from the 15-year FRM last year at this time, which was 3.21%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.96%, revealing a slight decrease from last week’s 3.11%. As for a year ago at this time, the 5-year ARM was a much higher 3.49%.

“Today’s U.S. Census data show permits, starts and completions of new construction homes mirrored rising builder optimism, as builders look to satisfy consumers who want the space, home offices and lower density neighborhoods that new construction can offer. Housing construction accelerated in tandem with the NAHB/Wells Fargo home builder sentiment index, which reached the highest value in 35 years," Ratiu said. "As we moved into the second half of the year, record-low mortgage rates drove a strong surge in housing demand against a backdrop of very tight supply."

He added that, "Builders are boosting permits while rushing to complete homes before winter weather approaches. However, homebuilders are still facing labor shortages and rising lumber costs, which will translate into higher prices for new homes over the next 12 months.”

Sam Khater, Freddie Mac’s Chief Economist, commented on how these rates are affecting the current housing market activity: “Despite the recession, the very low mortgage environment has spurred many first-time homebuyers to jump into the real estate market. In August, first-time homebuyer activity rose 19% from July to the highest monthly level ever for Freddie Mac. The first-time homebuyer driven rebound in the housing market has come at a critical time for the economy.”

First American Deputy Chief Economist Odeta Kushi also offered expert commentary on today’s housing climate: “The fundamentals driving new home sales are strong--low mortgage rates, a limited supply of existing homes for sale, and sturdy demand driven by millennials who are aging into homebuying. The pandemic and the desire for more space has accelerated this lifestyle decision. All components of the index reached new highs in September. Of particular importance is the one measuring single-family sales expectations in the next six months, which increased six points compared with the previous month and indicates builders are expecting momentum in the housing market to remain high.”