Eave’s “Just the Facts” is a weekly series designed to cut through the noise about home loan interest rates for borrowers and real estate professionals. Predictions of interest rate movements tend to be inaccurate, because the events that impact them are complex and unpredictable. Eave doesn’t try to play the role of forecaster, who claims to have some special insight. Few do! Instead, our Chief Credit Officer covers what happened in the market last week.
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The week ending May 25th brought very important data points on the state of the housing sector – New Home Sales and Existing Home Sales. Combined with housing starts (number of new homes where construction was begun) from the prior week, these three present a coherent story about the state of housing in the US.
The headlines were that new home sales declined 1.5 percent and existing home sales declined 2.5 percent in April from March. The sales of new homes that have not yet been started, jumped in April, pointing to strength in housing starts in the months ahead. However that’s a micro-comparison of one month to another. Zooming back to a 6-to-12 month time window, new home sales are off to a solid start in 2018 behind consistently strong demand due to solid job and income growth. The typical existing home for sale was on the market for just 26 days before being sold in April, down from 29 days a year ago. Homes are selling quickly, which is capping inventory growth. Prices also continue to rise along with mortgage rates, which, at some point, will dampen demand and price potential buyers out of the market.
Now, let’s zoom back to a 5 decade historical view. Graphs below show new & existing home sales, housing starts since the 1960s.
Clearly, construction & sales of new homes is lagging in a big way relative to historical levels. This is in contrast to existing home sales that continue to rise above historical peaks prior to the housing boom/crisis a decade ago.
Overall, we can observe that total housing sale activity (new + existing) is at or close to levels similar to peaks in the pre-great recession period. If a moderate correction were to happen in the economy, then housing sales will fall similarly to how wax-wane cycles worked prior to the great recession. This will be a healthy outcome that we need not fear.
This broader housing picture presents a likelihood that total home sales will peak in the next year or two and then start falling. There have been other Peaking/flattening signs in the US Economy as well and this will likely affect the Federal policy direction, possibly as early as Q1-2019. This is not to say the Fed will not hike rates three more times this year. It will most likely will – but it’s not clear what the Fed’s actions will be beyond the 3 rate hikes.
Our Updated Jumbo Rates *
In the meanwhile, our rates went down a notch starting last week and stayed there.
5/1 ARM – 4.000% Interest Rate, 4.627% APR
7/1 ARM – 4.250% Interest Rate, 4.646% APR
30yr FRM – 4.625% Interest Rate, 4.698% APR
* This estimate is informational only. It is not a commitment to lend. To apply for a loan, you’ll need to complete an application and provide additional information. Final approval of your loan is based on verification of your meeting the necessary underwriting criteria and property approval. The estimates for fees and other charges are not intended to be accurate until you have chosen a property and settlement service providers. Rates are estimates. Your final rate, loan product, and terms may be different. Normal credit qualifications and other terms and conditions apply. Products, rates and terms are subject to change unless product has been selected and rate has been locked after you have chosen a property.