The interest rate environment turned against the housing market last week, but experts said the overall outlook remains favorable for builders and home lenders.
Indeed, news of January's red-hot new home sales helped drive up interest rates last week.
The yield on the 30-year Treasury bond exceeded 6% for the first time in almost three months last Monday and climbed higher Tuesday, when the Commerce Department announced that new single-family homes were sold at an annual pace of 877,000 units in January. That was up 10% from December's revised pace, for the biggest one-month jump in more than four years.
The average rate on the 30-year fixed-rate mortgage climbed 10 basis points last week, to 7.19%, according to Freddie Mac's weekly survey.
"We're pretty much convinced that we're past the low point of rates this year," said David F. Seiders, chief economist at the National Association of Home Builders, who nonetheless thinks mortgage rates remain "very, very good."
David A. Wyss of Standard & Poor's DRI said he doubted the rate uptick would "change the market from being red hot.
"The fact of the matter is this a very strong economy," said Mr. Wyss, who is research director of the Lexington, Mass.-based unit.
The home builders group, however, predicts that by the second quarter the combination of higher rates and slackening job and income growth will weaken home sales. The group expects new home sales to total 775,000 units in 1998; that would make it another strong year but implies a substantial slowdown from January's pace.
The seasonally adjusted pace of new home sales has exceeded 775,000 units a year in every month since May. Last year's total was 803,000; 1996's was 757,000.
Judging by the group's housing market index for February, sales remained strong last month, too-and builders remained bullish about their prospects. The index jumped 9 points from January, to its highest level in almost four years.
The index, derived from a monthly survey, gauges current single family home sales, the traffic of prospective buyers and builders' expectations of sales during the next six months. All components of the index were up in February.
The latest single-family housing starts or permits also show that builders are going full throttle. Single-family permits in January were issued at an annualized pace of 1,133,000, up 6% from December. Single- family housing starts were at a rate of 1,196,000, 7% above December's number.
At the end of January the seasonally adjusted estimate of new houses for sale was 282,000-a 3.9 month supply at January's sales pace.
Mr. Seiders attributed the continued strength of the housing market in part to low mortgage rates.
Besides helping the tradeup market, low rates have changed the relative cost of renting and owning a home. "Housing demand is being fed not just by newly created households, but apparently a pretty strong movement of people out of rental apartments," Mr. Seiders said.
"We don't know exactly how far that dynamic will go, but clearly it hasn't run its course yet," he added.
He also noted that the unseasonably mild winter has allowed construction and home sales to continue at a rapid clip. So have inititatives by Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development to expand the pool of potential buyers, and a strong stock market that has boosted personal wealth and the demand for second homes.