The US housing market may be about to experience its strongest spring season since before the financial crisis. Cheap mortgages, warm weather, rising wages, and declining materials costs have helped to create an environment where affordability and supply are improving at the same time. That combination makes for a potent cocktail that could lead to a rip-roaring market, benefitting homebuilders.
The market for U.S. homes is driven by three principal engines: mortgage loan interest rates, home prices and available inventory. Right now, all three are doing their best to entice more buyers into the market or encourage builders to bring more supply into the market.
New research published by HSH, an online consumer destination for mortgage information and rate shopping, reveals that housing affordability has improved in most metro areas. In 49 of the 50 major metropolitan areas reviewed by HSH, the income needed to purchase a median-priced home decreased in the fourth quarter of 2019, compared to the same period a year earlier. That is mostly due to lower mortgage rates offsetting gains in home prices.
It is worth noting that affordability may look even better today. The current rate on a 30-year fixed rate mortgage is 3.45%, the lowest level since October 2016 and about 40 basis points below where it was at the time HSH was crunching its numbers for Q4 2019. What’s more, mortgage rates usually follow the direction of the 10-year Treasury note’s yield, which dropped to 1.172% on Friday, setting a new record low, and down more than 80 basis points since the beginning of the year.
Also on Friday, the yield on the two-year note registered its largest one-day decline since October 2008 to finish at 0.878%, compared with 1.099% Thursday. This is relevant in that the two-year yield is particularly sensitive to changes in monetary policy…