Thursday, August 15, 2013

Is the US housing demand driven by fear of higher rates?

According to the National Association of Home Builders, US builders are ecstatic these days. The housing market index (builder optimism) hit the highest level in nearly 8 years.

The question now is whether the strength in demand for homes can be sustained. One possibility is that potential buyers who were sitting on the sidelines are realizing that mortgage rates could go even higher and waiting for rates to decline may end up being costly.  The chart below from JPMorgan shows part of the survey by UMichigan that asks if this is a good time to buy a house because of rising rates. The "time to buy" crowd has risen sharply.

Source: JPMorgan

Other than family formation, limited housing inventory and new FHA loans (see post), could this be what's boosting demand for homes? The latest UMichigan results are out tomorrow, so we should know more.
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