Shaina Mishkin
Mortgage rates have surpassed 7%, but buying a new home could net you a lower rate.
About a quarter of buyers from home builder PulteGroup locked in rates as low as 5.75% in the first quarter, CEO Ryan Marshall said on the company's first quarter earnings call last week.
"Our company's ability to offer targeted incentives, particularly mortgage rate buydowns, is a powerful tool that can help bridge the affordability gap," he said.
PulteGroup isn't alone. At Nevada-based Tri Pointe Homes, "the use of incentives for some type of financing or rate buy-down continues to be a popular consumer choice," Chief Financial Officer Glenn Keeler said on a conference call last week, although he said the level of some incentives has dropped as buyers have warmed to higher rates.
At D.R. Horton, the nation's largest public builder, "we continue to stay focused on incentives that drive that activity," CEO Paul Romanowski said on a conference call earlier this month. The company buys down mortgage rates to between one percentage point to 1.5 percentage points below the market rate, he said.
Incentives from home builders aren't new but can help boost demand at a time when higher mortgage rates are darkening the outlook for a housing market rebound. As the market now expects fewer Federal Reserve rate cuts this year, the 10-year Treasury yield, a benchmark for mortgage rates, rose to its highest levels of the year last week. Weekly mortgage rates measured by Freddie Mac have been above 7% for two straight weeks, while Mortgage News Daily recently pegged the typical 30-year fixed rate at 7.45% on Friday.
This month is shaping up to be a muted one for the housing market. Redfin's measure of sales was just 1% higher than one year prior in the four-week period ended April 21, and about 20% lower than a similar period in 2022.
"Price growth may cool slightly in the coming months if mortgage rates stay high or rates might fall slightly -- but overall housing costs are likely to remain elevated for the foreseeable future," Chen Zhao, Redfin's economic research lead, wrote in a report.
Relatively few previously owned homes are for sale, but new home sales, a bright spot in last year's languid housing market, could remain strong even as rates rise. Sales of new homes in 2023 represented 14% of all transactions, the largest share since 2005, according to a Barron's analysis of Census and National Association of Realtors data.
Builders highlighted the lack of existing home inventory last week on their earnings calls as spurring buyer demand for new construction. "The available inventory of existing homes for sale continues to be low as homeowners remain locked into their low mortgage rates," PulteGroup's Marshall said.
Higher rates have weighed on demand -- but not enough to set off alarms, Marshall said. "We are seeing a small downturn that we think is reflective of the change in the rate environment," he said, referencing April traffic during the period when mortgage rates rose. "We don't, at this point, think it's anything to be too alarmed about, but we're watching it."
For now, prospective home buyers' budgets are dictated in part by inflation data. Hotter-than-expected readings could keep mortgage rates at current levels or push them higher, while cooling inflation could shift them lower.
If mortgage rates continue to rise, it could be more expensive for builders to buy down mortgages, and potentially cut into their margins.
Also at the whim of economic data: builder stocks. The 15 traditional home builders in the iShares U.S. Home Construction exchange-traded fund are down an average of about 11% since the end of March through Thursday's close, according to FactSet data.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 28, 2024 01:30 ET (05:30 GMT)
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