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Commentary > Bid and Ask
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Housing's still hot
So far, the rise in rates shows no signs of slowing the housing sector.
August 19, 2003: 11:21 AM EDT
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - What with the big rise in interest rates, everybody is waiting for the pace of housing to slow. They'll have to keep waiting.

Since hitting 45-year lows early in June, Treasury yields have risen furiously, with mortgage rates following right behind. Last week Freddie Mac reported that the average 30-year mortgage carried a rate of 6.24 percent, up more than a full point from the 5.21 percent that prevailed in June.

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Justin Lahart, senior writer at CNN/Money, talks about the hot housing market and whether there are any signs of a slowdown.

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The Mortgage Bankers Association reported last week that mortgage activity had fallen to the lowest level in a year and Monday it said it now expects $3.2 trillion in mortgage originations for 2003, down from the $3.4 trillion it estimated earlier. In 2004 it expects mortgage activity to slow to $1.9 trillion. Investors have reacted to all this by steadily selling shares of homebuilders, like Toll Brothers, Lennar and KB Home.

Yet housing remains remarkably hot. Tuesday the Commerce Department reported that housing starts rose to 1.87 million annual rate, the strongest pace in more than 17 years and well above the 1.793 million pace economists polled by Reuters expected. Monday, the Homebuilders Association's housing index rose for its fourth straight month, hitting its highest level since December 1999. Do-it-yourself outfits Home Depot and Lowe's just banged second-quarter results that easily beat estimates.

What gives?

First off, if the slowdown in mortgage activity is going to hit housing (or consumer spending, for that matter), it's going to happen with a lag, points out Lehman Brothers economist Joe Abate. Mortgage applications take a while to pass through the system -- those checks from this spring's wave of refinancing are probably just lapping up against people's mailboxes now.

Second, it's important separate out mortgage refinancing, where people who already own a home get a more favorable rate on their mortgage, from mortgage purchases aimed at buying a home. According to the Mortgage Bankers Association new mortgage application has moderated only slightly since June and is still above where it was through April.

Which makes sense, notes Northern Trust economist Asha Bangalore -- 6.24 percent mortgage is still quite favorable compared to the 8 percent rate of early 2000. An economy on the mend, and a shift toward an improving labor market, should keep housing solid.  Top of page




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