Housing Market is Hot While Rates are Low

Posted by Candy (media@realtytoday.com) on May 05, 2015 11:45 AM EDT
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A worker cuts a piece of pipe as he builds a new home on January 21, 2015 in Petaluma, California. According to a Commerce Department report, construction of new homes increased 4.4 percent in December, pushing building of new homes to the highest level in nine years.
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Glenn Kelman, CEO of Redfin, an online real estate search and brokerage company, said on Monday in an interview with CNBC that housing market is hot while the mortgage rates are low.

Current Mortgage Rates

According to the recent Freddie Mac survey of lenders, the average mortgage rates for a 30-year fixed loan and 15-year loan are 3.68 percent and 2.94 percent, respectively, Los Angeles Times reported. The news outlet noted that this is the sixth straight week that these mortgage rates have fallen within or even lower than 3.7 percent. Such low rates were not the norm many years ago. The 30-year fixed mortgage rate recorded two decades ago was 8 percent, and 13 percent three decades ago.

Hot Housing Market

This spring, an indication of a hot housing market is evident with the rise of pending home sales recorded in March. The sales pertaining to these properties rose this March to 1.1 percent compared to February, reports CNBC in another article, while citing the monthly index from the National Association of Realtors. The news site also noted that based on NAR's report, the pending home sales jumped to 11.1 percent greater than last year's recorded data, and is actually at its highest level since June, 2013.

Also, with price increase as the measure of hotness, the hottest markets among the 20 cities surveyed by the recent Case-Shiller study are Denver (10 percent) and San Francisco (9.8 percent) while the slowest market is reportedly Washington, D.C, posting only a 1.4 percent year-over-year increase, noted LA Times.

But, What Will Happen When Rates Go Up?

"We do not see consumers willing to pay that price when rates go up. We think there is going to be a step back as the money supply tightens," Kelman told CNBC's "Power Lunch."

Kelman added that in the latter part of 2013, when there was an increase in the mortgage rate, the demand for housing also declined within 10 to 20 percent. He said in his interview, "When rates go up precipitously, when the market has a bit of a spike, that's when you really see that pullback. We don't see people saying 'well, I'll pay whatever it takes.' We see people saying, 'while rates are low I'm going to pay this price.'"

The CEO also said, "What you want is more durable growth, not this up and down." This means, ideally, a housing market must have "less volatility," explained CNBC.

The Redfin CEO used the two hottest markets, Denver and San Francisco, as examples. Kelman said, "They are both crazy. There are not enough homes for sales in Denver; everybody in California is fleeing high prices."

Indeed, people might just be taking advantage of the current low mortgage rates in buying their homes this spring. But with increasing home prices, combined with high rates, unless you find the home you like, it is highly unlikely that you would take the plunge and buy a property.

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