Housing demand strong despite slowly rising rates - Movement Mortgage Blog

Inflation is rising at its fastest pace in more than three decades, but that hasn’t stopped Americans from spending money. Yet. The latest report from the Commerce Department shows that retail sales rose by 1.7% month over month—the fastest pace since the 1990s. Americans are mostly spending their money online, according to the report, with online sales increasing by a whopping 10.2% annually. 

This same demand is being felt in the mortgage industry with demand for home purchases staying strong despite mortgage interest rates rising slightly. While the Mortgage Bankers Association weekly survey showed that the purchase index decreased by 6% year-over-year cumulatively, there was still one segment that showed an increase. The MBA’s Associate Vice President of Economic and Industry Forecasting, Joel Kan, said, “Purchase applications increased for both conventional and government loan segments, as housing demand continues to show resilience at a time – late fall – when home buying activity typically slows. The second straight increase in purchase applications suggests that stronger sales activity may continue in the weeks to come. Despite elevated demand, purchase applications were 5.7 percent lower than a year ago.”

Freddie Mac’s economists also see consumer demand driving the market as well as interest rates. The latest 30-year fixed-rate mortgage average from Freddie Mac came in at 3.1%. While still historically low, the trend over the last few months has been moving upward and is expected to keep moving that way. In their latest report, Freddie Mac’s economists note, “The combination of rising inflation and consumer spending is driving mortgage rates higher. Shoppers looking to buy a home are fueling strong demand while ongoing inventory shortages are not improving in the presence of higher home prices. This reality illustrates the challenging situation facing the housing market.”

The purchase demand is keeping the housing industry moving, however, refinances continue to dry up. Rates have been so low for so long that a large amount of the population that would benefit from a refinance has already done so. This is still a good opportunity for those who have equity built up in their homes to look into a cash-out refinance. With home valuations still extremely high, many homeowners who have been in their homes for a long period of time could potentially benefit greatly from a cash-out refinance with rates still this historically low. As always, it’s best to speak to a Movement Mortgage loan officer to get a detailed look at what would be best for your personal financial situation. 

One thing the consumer demand is driving is homebuilder confidence. The most recent National Association of Home Builders/Well Fargo Housing Market Index report shows homebuilder sentiment rose by 3 points in November to 83. Anything over 50 is considered positive and this is the highest level for the report since last May.  However, that isn’t necessarily a positive for the housing industry. While home builders are bullish on business there is still the issue of supply chain. Some builders have intentionally slowed their pace of sales in order to ensure they can meet deadlines for finishing homes.

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Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.