Get ready for a huge change that will surely make a great difference in the housing market next year. For one the Federal Reserve has finally eased interest rates from 0% and after nine years minus a rate hike, an article from The Real Deal revealed.
Effects of the change are far-reaching and will reach a number of industries, but no matter how huge those impacts may be disparate. Increasing interest rates lead to more difficult borrowing which has the ability of slowing down home sales impacting US banks and at the end affects homebuilders.
History has proven that with the Fed's rate hike home starts will decline and will eventually hurt homebuilders. Increasing rates will definitely make home building more difficult as well.
According to a separate Credit Suisse note, "Homebuilding stocks are typically losers from an absolute and relative standpoint during tightening cycles."
"Historically homebuilding stocks underperformed the S&P 500 during each of the past six Fed tightening cycles."
After the Federal Reserve's decision to back down interest rates to 0%, the homebuilding sector saw an increase in homes starts and permits.
Wall Street executives have a different take on the matter, "If we do see some rate increases coming, because it reflects a stronger economy, nobody is going to not buy a house because the mortgage rates went up," Wells Fargo CEO John Stumpf said at the Goldman Sachs Financial Services Conference. "They can choose a different product and probably get the same rate. The same thing is true for small businesses."
CEO Brian Moynihan of Bank of America has different thoughts on the matter, "If you see rates rise, you'll see the mortgage market slow down," Moynihan commented earlier this month, before the Federal Reserve increased its rates.
Also during the financial conference, Blackstone Group CEO Steve Schwarzman said that most interest-rate hikes have led to an uptick in home prices. "Twenty-five out of 26 times when interest rates went up, home prices went up," Schwarzman said.
