Barrons News | Homebuilders could suffer due to Banks Flounder

Barrons News has shared what Alicia Huey, the trade group’s chairman, said in a statement “Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory.”

But recent bank tumult stands to impact builders’ ability to get loans, the trade group said. “A follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction (AD&C) loans for builders across the nation,” Robert Dietz, the trade group’s chief economist, said in a statement. “When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”

The high cost of buying a home has been in the spotlight as mortgage rates and home prices have risen. The typical monthly payment as measured by Redfin hit a new high of $2,563, the brokerage said last week, an increase of nearly $600 from the year prior.

A reaction to market worries that began with the failure of Silicon Valley Bank sent mortgage rates lower last week, the Mortgage Bankers Association said Wednesday.

“Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds,” Joel Kan, the trade group’s deputy chief economist, said in a statement. “This decline pushed mortgage rates for all loan types lower.” The trade group’s measure of the average contract rate on a 30-year fixed-rate mortgage declined to 6.71%, from 6.79% the week prior.

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One measure of daily rates shows that the declines, though volatile, continued into this week as investors grapple with turmoil in the banking sector and Federal Reserve expectations ahead of next week’s Federal Open Market Committee meeting. Mortgage rates tracked by Mortgage News Daily dropped 0.19 percentage point on Monday, to 6.57%, rose to 6.75% on Tuesday, and fell back to 6.55% on Wednesday.

The drop in rates last week may have increased mortgage demand. The mortgage association’s purchase index gained a seasonally-adjusted 7%, while its refinance index gained 5%. Despite the increase, both indexes remained well below year-ago levels, with the purchase index down 38% and the refinance index 74% lower compared to the same week in 2022.

The decline in mortgage may not outweigh other industry headwinds. “While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers,” said the builders’ association’s Dietz.

The broader upheaval could also weigh on buyer confidence. “While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions,” the mortgage association’s Kan said in a statement to Barrons News.

Investors will get their next look at mortgage rates on Thursday, when Freddie Mac releases its weekly gauge. Freddie Mac’s measure last week, released before the bulk of declines in the 10-year Treasury yield took place, was 6.73%.