Mortgage rates fell slightly below 7% after a better-than-expected economic report showed inflation was easing. A finance professional says the decline is an opportunity potential buyers shouldn’t miss.
“Millennials should jump on a 6% mortgage like bears looking for honey,” Bill Smead, founder and president of Smead Capital Management, told MarketWatch.
“The spread of the 10-year Treasury note TMUBMUSD10Y,
and the 30-year mortgage rate has reached a ridiculously high level. It is unusual that there is a 3% discrepancy,” Smead added.
There are 50 million people between the ages of 28 and 38 in the United States, some of whom may be prospective homeowners, according to the Mortgage Bankers Association. For those under 35, the home ownership rate is just 39%, according to the MBA, while it’s 61% for those between the ages of 35 and 44.
The cost of living in the US is finally showing signs of slowing, according to a November report, with annual increases in the prices of consumer goods and services from 8.2% in September to 7.7% in October. Reacting to the inflation data, mortgage rates jumped from 7.22% on Nov. 9 to 6.62% on Nov. 10, according to Mortgage News Daily.
Homebuilder stocks were hurt by the sharp rise in mortgage rates, Smead noted.
Many homebuilders expressed low confidence due to declining buyer traffic. Builder confidence fell in October for the 10th straight month, the National Association of Homebuilders reported, and with the exception of the period at the start of the pandemic, homebuyer traffic fell to its lowest level in 10 years.
An analyst told MarketWatch earlier this month that buyers are abandoning contracts to purchase new homes from builders at a much faster rate than before.
“Regardless of what people think the Fed will do, the peak of consternation about mortgage rates, relative to the rest of the Fed’s set interest rates, was about a month ago,” Smead said. “There was a serious pessimism attached to these homebuilder stocks. They are in much better shape than the last time the economy struggled. It was wrong to treat them that way.
Macro trends provide a strong edge for manufacturers and sellers alike, Smead added.
“We know there is a huge pool of home buyers. We know people are willing to travel an average of 50 miles from home to buy a home,” she said. “That momentum will accelerate if these mortgage rates return to historic levels relative to the 10-year Treasury.”
