The US housing market has been a roller coaster ride over the past two years. After a strong recovery from the pandemic, soaring home sales and prices faced a setback when mortgage rates started climbing. However, recent data suggests that the housing market is displaying resilience, even as mortgage rates continue to rise. Despite affordability challenges, homebuyers are adapting and driving new home sales to their highest levels in over a year.
New Home Sales Rose Despite Higher Mortgage Rates
According to Freddie Mac‘s latest report, the average 30-year fixed-rate mortgage increased slightly to 6.71% in the week ending June 29, up from 6.67% the previous week. This marks a significant rise from the 5.70% rate recorded a year ago. Mortgage rates have consistently remained above 5% for the majority of the past year, reaching as high as 7.08% in November. Despite these challenges, homebuyers have adapted to the changing market conditions, leading to a surge in new home sales. Freddie Mac’s chief economist, Sam Khater, attributes the robust rebound of new home sales to a slightly greater supply of new construction compared to the resale market. The increased demand for new homes has resulted in rising prices, which have seen consecutive monthly increases.
Mortgage Applications Defy Rising Rates
Contrary to expectations, the recent uptick in mortgage rates has not dampened mortgage demand. The Mortgage Bankers Association‘s seasonally adjusted index reveals that total mortgage application volume rose by 3% compared to the previous week. This increase was driven by a 3% rise in applications for home purchases, reaching the highest level since early May. The increasing popularity of new homes has been further fueled by incentives provided by builders, including assistance in paying down mortgage rates.
*Bottom line: The US housing market has demonstrated its ability to weather the storm as mortgage rates rise. Buyers have adapted to the changing conditions by shifting their focus towards new home sales, which have reached their highest level in over a year. Although challenges persist, such as affordability and limited inventory, the market shows signs of resilience as builders offer incentives to entice potential buyers. It remains crucial to monitor these trends to assess the long-term impact on the housing market.
