The news hasn’t been good for the housing market of late, as sales tumbled last month to their lowest level since 2015. But Bank of America says real estate investors should take heart, thanks to cheaper home loans.
Mortgages are sliding, which means more buyers can swing a home purchase. “Don’t believe the narratives of a housing collapse,” B of A economist Michelle Meyer wrote in a research note. The housing sector’s problems, she added, “should only be a slight drag on growth.”
The biggest reason for her optimism is the recent slide in mortgage rates—to 4.62% for a 30-year fixed loan, from 5% last fall, which was a seven-year high, according to Bankrate, the loan research firm. That’s not as low as the 3.95% level of a year ago, but it marks progress.
You can’t blame people for feeling leery about the housing sector’s woes. Memories are still tender about the last real estate plunge, which set off the Great Recession.
There’s no doubt that housing has been struggling recently. Existing home sales dropped 6.4% in December. High home prices and a lack of inventory, especially for starter homes, have kept ownership out of many potential buyers’ reach. A survey by Fannie Mae found that more Americans thought now was a bad time to buy a home.
What’s more, homebuilder stocks have been skidding, following a nice post-crisis recovery. The S&P housing sector, as reflected in the SPDR S&P Homebuilders ETF, had risen last January to exceed its 2006 peak—and then lost altitude, dipping 24.4%.
Lately, there has been a slowing in the increase in home prices, which is another good sign.