Rise in mortgage rates will temper housing demand

The 30-year mortgage rate fell below 3% last week, but we doubt it will stay there for long. A rise in 10-year Treasury yields means mortgage rates will soon tick-up. That will weigh on housing demand, which had already been losing steam. Indeed, mortgage applications for home purchase fell to a 5½-month low last week, and new home sales dropped back in September. The past surge in home sales, coupled with record low inventory, has helped drive an acceleration in house price growth, with FHFA reporting a rise to 8.1% y/y in August, a 14½-year high. By contrast, rental growth slowed to -1.3% y/y in the third quarter according to REIS. But rent arrears are low, and the positive news on vaccine development helped drive a recovery in apartment REIT valuations.