Benzinga - by Neil Dennis, Benzinga Staff Writer.
Mortgage rates are in “rapid descent” according to mortgage securities broker Freddie Mac, which means homes should become more affordable for Americans who may have been priced out of the housing market when rates hit their peak.
The average rate of interest on a 30-year mortgage stood at 6.61% in the week ending Dec. 28, down from 6.67% in the previous week. From its peak of 7.79% in the week ending Oct. 26, the 30-year rate has now fallen 1.18 percentage points.
Sam Khater, Freddie Mac's chief economist, said: “The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down.”
“Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation, and a nascent rebound in the housing market,” he added.
Homebuilders Enjoy Strong Stock Gains
At the same time, housebuilders were struggling to keep up with demand as supply chain issues — a hangover from the Covid pandemic — slowed materials deliveries and delayed projects.
These factors boosted shares in the sector and the iShares U.S. Home Construction ETF (NYSE:ITB), an exchange traded fund that track the performances of U.S. housebuilders gained 68% during 2023.
Since the end of October, as markets began to realize the Federal Reserve was at the end of its rate hike cycle, the ITB gained 43%.
Also Read: Strong Homebuilder Performance In November Hints At 2024 Tailwind For ‘Plow-Horse Economy’
Surging Sales For DR Horton And Lennar
DR HortonDonald R. Horton, chairman, said: “Despite continued higher mortgage rates and inflationary pressures, our net sales orders increased 39% from the prior year quarter, as the supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favorable.”
DR Horton’s shares are up 71% over the year — gaining 50% since late October.
Meanwhile, close competitor Lennar (NYSE:LEN) reported in its fourth-quarter statement on Dec. 15 that new orders increased by 32%.
Stuart Miller, chairman and co-CEO, said: “During our fourth quarter, the economic environment shifted as interest rates rose for most of the quarter, and then subsided. Higher interest rates tested homebuyer sentiment, although purchasers remained responsive to incentives that enabled affordability.”
Lennar shares are up 65% this year and up 43% since the end of October.
Outlook For 2024 Remains Positive
Jared Woodard at Bank of America said: “With every 25 basis points of mortgage rate decline below 7%, over 1 million households get priced into the housing market.
“Homebuilders have outperformed over the last two years despite higher mortgage rates partially because higher rates constrained existing home supply, pushing buyers into new construction.”
Now Read: Goldilocks 2024: Investors Increasingly Optimistic On Profits Outlook For Next Year
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