Mortgage rates may remain above 6% 'even until 2026,' expert says

Sales of new U.S. single-family homes rebounded in November. Rising mortgage rates continue to be a pain point in the housing sector as buyers and sellers adjust to the reality of today's higher rates. We're looking at the setup for the U.S. housing market in 2025. Walton, Global Executive Vice President of Capital Markets, Katie Hubbard joins us now to discuss here. Katie, good to see you and thanks so much for taking the time here this morning. So what type of rebound or what type of momentum are you anticipating in the housing market for 2025? Yeah, Brad, thanks so much for having me. I mean, our clients are public home builders and National Association of Home Builders has reported that home builder sentiment is at an all-time high since April 2022. So we're feeling bullish on the new home housing market. Home sales are up 5.9% month over month, 8.7% year over year, and all of our clients are anticipating building and selling more homes in 2025 than they did in 2024. And Katie, where are there certain states, regions where you're going to see that building more than others? Yeah, absolutely. It's definitely regional. So the South continues to have a lot of new home sales and is doing well. However, there are expensive markets like California that's just it's more difficult to build there. Home builders are having to offer less incentives, but there's less inventory in places on the West like California. You're seeing some increased communities in mountain states like Montana and Idaho as well. You know, it's interesting because as you kind of look across the new home side of the equation versus the existing homes, some data out from Redfin this morning and a comment from their senior economist noting that elevated mortgage rates are likely going to cause many homeowners to hang on to their homes and the low rates they have locked in, meaning there will be enough buyers competing over a relatively low number of homes to keep prices ticking up consistently. As you think about that playing out in the existing homes market, what does that spell out for the propensity for buyers to actually come into the market at higher prices on the new home side? Yeah, absolutely. I mean, existing home inventory still remains low at about 3.8 months, while new home inventory actually ticked up 2% a month over month, so we're at about 490,000 homes on the new home side, and that is just under three homes per community of unsold available homes, but that's really the high end of where our clients like to, you know, they like to cap it no more than three unsold homes, but we're still seeing price declines in new home sales versus existing homes where the prices have continued to increase because of that low inventory. So our clients are still, you know, offering incentives like mortgage rate buy-downs because of the elevated mortgages. We don't think mortgages are going to get to 6%, not even until 2026, where that magic mortgage rate number is really 5.5%, so it's going to cause, you know, there's still the elevated mortgages causing affordability issues on both sides. So Katie, your clients are, and I understand they're, you know, committed to these mortgage rate buy-downs. What does that mean for their margins? Yeah, so their margins are still relatively high right now. I mean, they're operating extremely well, especially we provide land to public homebuilders for land banking, which helps with their margins, so the public homebuilders, the large ones, are continuing to get bigger and improve their margins, where maybe small ones are struggling who don't have the same ability. All these things considered, as you're thinking about the type of homebuyer that we're anticipating will drive much of the demand in 2025, what generational scale does that come in at? Yeah, so the first-time homebuyers are making up about 30% of the market right now. We're in a robust market. First-time homebuyers are 40%, but what's interesting is that the age of the first-time homebuyer has increased, so they're now 38 years old buying their first home, so you're seeing, you know, older people buying their first-time home. They're willing to accept smaller homes, higher density, as long as there's that community space, and then groups that don't have a mortgage, so maybe they're buying their second home or they're going into 55-plus communities. The public homebuilders are really building the product to meet the demand of those groups, not only the older first-time homebuyer, but then the move-up or retirees. I'm curious, Katie, in your opinion, any way Washington can step in and help this sector, the housing sector specifically, you know, on the campaign trail, of course, this was a hot-button topic. Trump and Harris both talking about it, both talking about different ways to, for example, boost supply. Your thoughts on that? Yeah, I mean, our clients are really on the wait-and-see as far as the new administration coming in because of one, labor and immigration costs could go up, causing home prices to increase. Also, tariffs could go up, causing prices to increase. So those are really where we're at the wait-and-see, but many people think when they hear the Fed lowering rates, that's going to automatically lower the 30-year fixed mortgage. They don't realize it's more tied to the 10-year treasury, where the spread over the 10-year treasury to the 30-year fixed is much higher than the average. It's typically 190 basis points above, and we're sitting at about 230 to 250 basis points above the 10-year treasury. And so what Washington can do is, I mean, just be cautiously, you know, moving towards, you know, the tariffs and, you know, the immigration policies that won't really dramatically affect the new homebuilders. Katie, great to see you and have you on the show today. Happy holidays. Thanks, Josh and Brad. Thanks for having me.