Thoughts on Housing Supply and Demand With 30-year mortgage rates above 4%

So far, there has been no obvious impact on demand from 30-year mortgage rates above 4%. Here is a graph from MortgageNewsDaily of 30-year mortgage rates.

Housing Demand Remains Strong

I’ve spoken to several mortgage brokers over the last few days, and they are reporting purchase demand remains strong. They did mention a decline in refinance activity due to higher rates, and several brokers mentioned appraisals are falling short - and buyers are having to fill the “appraisal gap”.

Other measures of demand - like the MBA purchase index - have weakened a little - but are still showing solid purchase demand (the weekly index is released every Wednesday). From the MBA this morning: Mortgage Applications Decrease in Latest MBA Weekly Survey

The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 5 percent compared with the previous week and was 7 percent lower than the same week one year ago.

The NAHB monthly homebuilder survey is showing strong buying demand. From the NAHB: Builder Confidence Eases on Supply-Side Constraints

Despite strong buyer demand, builder sentiment continued to slip in February as the industry grapples with ongoing building material production bottlenecks that are raising construction costs and delaying projects. … The HMI index gauging current sales conditions increased one point to 90

emphasis added

This is very strong “current sales conditions.

All indications are demand remains strong.

Housing Supply Remains at Record Lows, Supply Constraints Limit New Construction

Existing supply is still at record lows. The weekly Altos Research survey showed Housing Inventory February 14th Update: Inventory Down 2.5% Week-over-week; New Record Low

As of February 11th, inventory was at 250 thousand (7-day average), compared to 344 thousand for the same week a year ago.  That is a decline of 27.5%. … Last year, seasonally, inventory bottomed in April 2021 - very late in the year - usually inventory bottoms by February. An early key in 2022 will be to watch if inventory bottoms earlier this year.

Also, my monthly survey of local markets indicates inventory is at record lows in almost every market.

Meanwhile, homebuilders are struggling with both price increases and supply constraints. The most recent new home sales report showed that the Inventory of homes under construction highest since 2007 and the most recent housing starts report showed Most Housing Units Under Construction Since 1973

This graph shows housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 769 thousand single family units under construction (SA). This is the highest level since February 2007. Blue is for 2+ units. Currently there are 750 thousand multi-family units under construction. This is the highest level since July 1974!

Homebuilders are reporting that supply chain issues are still not easing. From John Burns Consulting senior research analyst Matt Klinger:

Matt Klinger @MattKlinger_

Supply chain bottlenecks still not easing up, according to our recent survey of building material dealers. Trucking issues were the focal point this month, but labor and widespread product shortages also continue to cause headaches. #buildingproducts #buildingmaterials

And from Rick Palacios Jr., John Burns Director of Research:

Rick Palacios Jr. @RickPalaciosJr

Still tough getting windows to builder job sites.

Current Situation

There is no evidence that higher mortgage rates are slowing demand, and inventory remains at record lows (and supply remains constrained). Interesting times. Stay tuned.