Real Estate Woes: High Interest Rates Reduce Mortgage Applications | hake brand
The Mortgage Banker’s Association (MBA) reported on April 14 that mortgage applications for new home purchases have declined. They were down 5% from a year ago in March and 10% from February 2022, a month earlier.
This is the direct result of higher interest rates. The average 30-year mortgage rate rose to 5.13%, according to CNBC. This is an increase of 4.90% for conforming mortgages with a decrease of 20%. The increase from the 5% rate level is the highest since November 2018.
Lower mortgage forecasts
As a result, MBA now expects new home sales to fall for the fourth consecutive month. Additionally, MBA expects there to be a 35.5% decrease this year in the total number of mortgages in 2022.
In other words, people are not willing to buy as many houses at higher interest rates. This could eventually dampen house prices as supply and demand effects resolve imbalances.
For example, The Wall Street Journal (WSJ) reported last week that there is a “growing sense of urgency to list properties before the market cools.” The WSJ referred to a Dallas Federal Reserve study that found house prices were approaching a “bubble” level.
Falling demand is evidence that prices may soon cool, Redfin chief economist Daryl Fairweather, according to the WSJ.
Don’t cancel real estate growth just yet
However, the MBA reports that home buyers are increasingly looking for new homes, given the lack of existing homes for sale.
In fact, Tri Pointe Homes (TPH) CEO Doug Bauer told CNBC’s Squawk on the Street on April 13 that the housing is still in good shape for the long term. Although interest rates are rising more than 200 basis points in the 10 states in which they operate, they are still seeing good demand for new homes. He said that’s because the supply of new homes is limited, especially for the core millennial home-buying group.
Shares of TPH trade on a forward price-to-earnings (P/E) ratio of just 3.6x, according to Yahoo! Finance. According to Morningstar, its average PER over the past 5 years has been 8.6x. This shows that there is no extreme pessimism in the valuation of new home inventory like Tri Pointe Homes. This could make it a good buy for value investors.
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I rely on the “editor’s exclusion” of the Investment Advisers Act 1940 to provide this information without any personalized or individualized investment advice.
Mark Hake writes about InvestorPlace.com, Barchart.com, Medium.comand Newsbreak.com on stocks and cryptos.