Buyers are stepping off the sidelines…
There may be no sign of an imminent homebuying surge across the US – but consumer sentiment about the market is clearly improving in a sign that brighter times could be ahead.
Fannie Mae’s latest survey on homebuying intentions saw consumer optimism on the market jump to its highest level since March 2022 as confidence on the mortgage rate and employment fronts pushed positive sentiment upwards.
Its Home Purchase Sentiment Index (HPSI) for January showed that Americans are increasingly less concerned about losing their jobs over the next 12 months, with over a third (36%) of respondents indicating they believe mortgage rates will continue falling this year.
Last week, mortgage rates jumped for a third consecutive week, with the average 30-year rate in the US hitting 6.9%, although the overall trend is downwards from the average high of 8.45% in 2023.
New home sales are also up, with purchases of new single-family homes ticking northwards by 1.5% in January to an annual pace of 661,000.
Kevin Leibowitz (pictured top), chief executive officer and co-founder at Grayton Mortgage Inc., told Mortgage Professional America that the local New York market had seen “robust” recent performance, buoyed in part by improving sentiment on interest rates.
Constant increases in interest rates and borrowing costs tend to “scare everybody off,” Leibowitz said – but the fact that the Federal Reserve has likely reached the end of its rate-hiking path appears to have convinced many borrowers that the fog may finally be clearing.
“There are still some fundamental positives,” he said. “If at some point the Fed does cut rates, whatever transaction we’re putting together now will be a future refinance. And I think even new consumers get that enough.”
In January, US new home sales saw a 1.5% increase, buoyed by lower mortgage rates. Sales reached an annualized pace of 661,000, slightly below expectations. https://t.co/2On9PaS9km#mortgageindustry #housingmarket #homesales #houseprices
— Mortgage Professional America Magazine (@MPAMagazineUS) February 27, 2024
Prospect of greater competition influencing some borrower intentions
Many clients started out 2024 with a renewed focus – something resembling a New Year’s resolution – on entering the market, Leibowitz said, in the understanding that rate drops down the line are likely to bring about a much more heated market than the current one.
That means plenty of those borrowers are willing to accept today’s higher interest rates instead of facing a spike in competition if they wait for rates to fall.
“I do think that some of my clients have kind of come into the market now under the understanding that if interest rates do drop a lot, it’s going to be a crazy market like we had in 2021 where you have 50, 60, 70 people showing up on an open house and 40 people submitting bids, and 20 people highest and best,” he said.
“It’s like, ‘Well, look: I could swing this at a higher rate, and why don’t I try to get involved in the process before rates do fall in earnest, and then everybody is competing with me again?’ And I think that’s a fair assessment – get in before everybody else does.”
Skyrocketing rental costs make homebuying an attractive option
Another factor behind many prospective buyers’ decisions to jump into the market now is the eyewatering cost of renting an apartment in many major cities. In July, the New York Times reported monthly rent costs in New York had spiraled upwards by 5.3% on a year-over-year basis, surging to $3,980, with Jersey City, Miami, and Boston also posting sizeable increases.
That price growth, and uncertainty over how much rent costs will increase in the coming years, means even an expensive mortgage whose costs don’t fluctuate can be a more appealing option for borrowers, according to Leibowitz.
“Especially in some places like New York, even in an expensive rate, you’re fixing your costs if you do a fixed-rate mortgage, which is most of what we do,” he said. “So that looks more palatable than ‘Let me see what my landlord is going to do.’
“There are some of these nightmare raising-rent stories, up 20%. Well, if you buy at whatever interest rate, you’re fixing your cost side from taxes, insurance, and you’re not going to get the landlord just kicking your ass on rent. And then if rates do improve then, hey, let’s lower costs – which will not happen in rent generally.”
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