Housing inventories are low and credit standards are tight and that is not going to change anytime soon, according to Scott Anderson, chief economist at the Bank of the West.
However, the supply of homes for sale will become “more balanced as mortgage rates move higher,” he said in an interview. That’s because potential sellers sitting on the sidelines will be enticed to put their houses up for sale as prices continue to rise.
Anderson’s expects the 30-year fixed-rate mortgage will be around 4.7% at yearend—about where it is now. And he is forecasting the 30-year rate will be around 5.15% by yearend 2014.
Such a gradual rise in rates is “not enough to derail the momentum” in the housing market, Anderson said. If mortgage rates go up too quickly, he noted it could dampen demand for housing. Between rising rates and prices, housing affordability has already been reduced by 20%.
Higher rates might also open the door for the banks to relax their lending standards.
“As longer-term rates move higher, that makes the spreads more attractive and banks will start to get more aggressive,” he said told NMN.
Anderson cautioned, however, “It isn’t going to happen overnight.”
That’s because the Federal Reserve wants to keep interest rates low.
Anderson and other
The Bank of the West chief economist expects the labor market will continue to improve and the demographics for the housing market look very favorable.
“There is a lot of pent-up demand. A lot of people in their 30s have delayed buying a home,” Anderson said.
