Home loans have are in a downward trend as the broader as the tumbling bond market poses a serious threat to the entire U.S. economy.
Mortgage Rates Up
According to last week’s data by Freddie Mac, a U.S. mortgage provider, the 30-year fixed-rate mortgage had dropped by six basis points in mid-August and averaged at 4.53%, whereas the 15-year fixed-rate mortgage dropped from 4.05% to 4.01%. The Treasury-indexed hybrid adjustable-rate mortgage was also down three basis points at an average of 3.87%.
The drop in mortgage rates was in line with the 10-year U.S. Treasury note in the aftermath of the Turkish lira crisis as investors turned towards less risky U.S. treasuries. Many analysts now fear that the crisis could spill across the border, affecting the U.S. stock market. With investors flocking the government bond market, prices have shot up bringing down the bond yields.
Lower mortgage rates are good news for borrowers and the housing industry which could receive a boost from increased buying activity. But the shortage of units in the real estate markets has discouraged future buyers who are now giving up after searching for a home for so long.
This means that ever lower mortgage rates can’t pull the sluggish housing market out of its misery. Analysts even believe that if things remain unchanged for the next few months, the industry could seriously weigh down on overall economic growth.
Chief economist Doug Duncan from Fannie Mae says that the lack of building activity, brokers’ commission and home sales are preventing growth in the housing sector. If conditions continue to remain stagnant, the labor market could be affected by slow housing growth.
A research from Challenger, Gray & Christmas last week showed that fewer Americans are on the move to look for new employment. The number of job seekers who relocated this year was just around 10 per cent, the lowest it has been in years. In comparison, the average relocation rate was 19 per cent 10 years ago.
Daren Blomquist of Attom Data Solutions says that when more people are on the move, the rising home sales give a halo effect to the local economies. Because the housing industry doesn’t just consist of buying and selling activity; it actually meshes together a network of real estatre agents, moving companies, construction firms, home improvement stores and many other businesses.
Last month’s U.S. economic growth report showed a positive signs as the annual domestic product rate climbed at 4.1 per cent in the most impressive stride in past four years. But the report also revealed an ugly side of the housing industry as residential investments slumped consistently for the third quarter. When you add lower housing affordability and fewer units for sale to the mix, you have a perfect recipe for slowdown.
Red Flag for the Economy
Stifel’s chief economist, Lindsey Piegza, says that the sluggish growth is raising red flags for the booming economy which could be seriously affected by the housing market in the second half of 2018. Higher home sales are undoubtedly an indication of rising construction activity and consumer confidence. But the tightening lending standards and lowered housing affordability proves that the market has already peaked for the cycle.
Despite a strengthening job market and rising paychecks, the housing industry is showing signs of buyers’ fatigue evident through the recent sales reports. In July, the National Association of Realtors revealed that existing-home sales fell for third month in row at a yearly pace of 5.38 million homes. On top of that, the rate of new residential construction softened by 1.17 million units, driving sales growth even further down.
Although many economists say that the monthly housing data isn’t an accurate measure of industry growth due to market volatility, the trend has been downwards for the past many months now.
The new tax laws are amidst the number of factors contributing to slow housing growth especially in areas like Manhattan and Los Angeles where luxury home sales have cooled down due to buyer reluctance. Even the cheaper end of the market has now crossed the affordability limit leading to an industry-wide decrease in home sales.