Rising Rates Unlikely to Dampen Spring Home-Buying Season, According to First American Potential Home Sales Model - Seite 2
- Rate Lock-In: “Most existing homeowners have mortgages with historically low rates, and there is limited incentive to sell if it will cost them more each month to borrow the same amount of money,” said Fleming. “While rates are only marginally higher today than the rock-bottom rates of 2.68 percent in December of last year, this increase can still leave existing homeowners feeling ‘rate locked-in’, disincentivizing them from selling their homes and preventing more supply from reaching the market.”
- The Existing Owner’s Dilemma: “The other supply constraint is rooted in the uniqueness of the housing market. In most markets, the seller makes the decision to add supply to the market independent of the buyer. Yet, in the housing market, the seller and the buyer are, in many cases, the same person – the existing homeowner. To buy a new home, you must also sell the home you already own, and then find a home you like better,” said Fleming. “Every home is different, an almost perfectly heterogeneous product, so when supply is constrained as in today’s market, it becomes difficult to find a home better than what you already own. The existing owner faces the dilemma of whether to sell or not when they fear not being able to find something to buy.”
- Lack of New Construction: “One way to solve the supply issue is by building new homes, but construction headwinds have limited the homebuilders’ ability to build enough homes to keep up with housing demand,” said Fleming.
The Maybe: The Positive Impacts from Growing Equity and Credit Loosening
- Home Equity: “Existing homeowners today are sitting on record amounts of equity. As homeowners gain equity in their homes, the temptation grows to list their current home for sale and use the equity to purchase a larger or more attractive home, if they can find one for sale,” said Fleming. “House price appreciation in January contributed to approximately 34,000 potential home sales in February, but remains uncertain in the days ahead. While homeowners may want to use their equity to buy something bigger and better, they first must find something to buy.”
- Credit: “The other ‘maybe’ is credit because the future of credit is critically dependent on the health of the economy. At the onset of the pandemic, tighter credit was the biggest contributor to the loss of potential home sales, as lenders tightened their credit criteria to account for a higher likelihood of forbearance and delinquency,” said Fleming. “In February, credit standards loosened due to positive economic news, and had the greatest positive impact on housing market potential on a month-over-month basis, contributing 41,000 potential home sales. The economic recovery is on track to strengthen, but some uncertainty remains.”
But the Likeliest Scenario Is…