Rising prices can't stop US real estate boom

Washington

MORTGAGE rates are finally ticking up in the United States, one year after the Federal Reserve cut its lending rate to boost the economy as the Covid-19 pandemic arrived, but that's not expected to cool the hot housing market.

While the wider US economy has struggled after states restricted business to stop Covid-19, real estate was one of the few bright spots in 2020, boosted both by low mortgage rates and the shift towards remote work caused by the pandemic.

"We have seen mortgage rates move higher in the past month or so," said Joel Kan of the Mortgage Bankers Association.

The housing market is a key part of the world's largest economy, and mortgage rates are closely watched to gauge the ease with which Ameri-cans can buy property.

They are tied into the wider US Treasury bond market, where yields have been rising in recent weeks as traders fear that the economy's improving health could bring inflation with it.

Rates on 30-year mortgages are now ticking up and expected to hit 3.5 per cent by the end of the year, after dropping in July below 3 per cent, a low not reached before.

"In that sense, it is bad news for buyers, because now they are facing higher interest rates, higher monthly payments," said Lawrence Yun, chief economist at the National Association of Realtors.

Mortgage rates have hovered around 4 per cent for the past de-cade, but US homebuyers have seen much higher borrowing costs in the past.

Rates were around 8 per cent in the early 2000s, and hit their record high of more than 18 per cent in the early 1980s, according to government-sponsored lender Freddie Mac.

Despite the recent uptick in rates, Mr Yun says they remain "incredibly low", and predicts better economic growth that puts more money into Americans' pockets will help them overcome the increased borrowing costs and push real estate sales up 15 per cent this year.

Even with the expectation that offices will reopen as Covid-19 vaccinations become widespread, some employees could continue working remotely and look for new houses that accomodate that - a dynamic viewed as already boosting sales last year.

Mr Kan said the market is "still looking pretty strong", and noted that mortgage costs are only one component of the decisions that go into home buying, along with finding a property the buyer likes.

Yet as more buyers have closed on homes across the US, supply has grown short, pushing prices up and sending developers scrambling.

Sales of existing homes were up 5.6 per cent last year from 2019, their highest level since the booming housing market of 2006, just before the housing bubble burst and 2008-2010 global financial crisis began. AFP