Buyers may be about to flood the biggest part of the housing market
In the past two weeks — since Donald Trump was elected president — mortgage rates jumped alongside other interest rates
New homebuyers may be about to flood the US market for existing homes to lock in the lowest mortgage rates they can.
In the past two weeks — since Donald Trump was elected president — mortgage rates jumped alongside other interest rates. This happened as investors raised their expectations for economic growth and inflation, placing their bets on Trump’s plans to spend heavily on infrastructure and cut taxes.
The30-year national average rate was up from 3.5 percent on Election Day to 3.95 percent on Tuesday, the highest level since December 2015. This is still historically low.
“In the short-term, some prospective buyers may rush to lock in their rate and buy now, while others — especially those in higher-priced markets — may be forced to delay as a larger monthly payment outstretches their budget,” Lawrence Yun, the chief economist at the National Association of Realtors, said in a data release on Tuesday.
The NAR released its monthly report on existing-home sales, which showed that sales rose at the highest annualized pace in a decade during October. Sales increased by 2 percent at a seasonally adjusted annual rate of 5.60 million, beating economists’ consensus forecast.
And if mortgage rates continue rising, existing-home sales — which record the most housing transactions — could increase to record levels. Additionally, a strong jobs market and higher wages could offset any drop in demand that higher mortgage rates cause, according to David Berson, the chief economist at Nationwide.
“October’s strong sales gain was widespread throughout the country and can be attributed to the release of the unrealized pent-up demand that held back many would-be buyers over the summer because of tight supply,” Lawrence Yun, the chief economist at the NAR, said.
The housing market has been faced with an inventory crunch that drove up prices, especially in coastal metros. The median existing home price rose 6 percent year-on-year in October to $232,200 — the 56th straight rise.
Ralph McLaughlin, the chief economist at Trulia, said Trump’s focus should be on policies that encourage existing owners to sell and build, not just those that boost demand.
“Such policies could include a reduction in capital gains taxes for homes sold by investors to owner-occupiers, an increase in tax rates on rental income, or both,” he said in a note.