LGI Homes CEO Sees Demand Remains Strong As Mortgage Rates Rise
A day earlier, Freddie Mac reported the 30-year fixed rate mortgage reached its highest level since July after eclipsing 3%. And on Wednesday, the Mortgage Bankers Association’s seasonally adjusted index showed that the total volume of mortgage applications was mostly flat last week.
The housing market has been one of the strengths of the U.S. economy during the Coronavirus pandemic, driven in part by increased geographic flexibility and record borrowing costs. But one recent upward movement in US Treasury yields has led some to wonder about the implications for residential real estate.
“Still a very strong demand that we see in the housing market,” Lipar said in an interview on “Closing bell”.
LGI Homes, based in Texas, has operations in nearly 20 states, primarily in the southern and western United States. As the company focuses on early adopters, Lipar said strength is seen across price points and geographies.
“I think from a historical perspective the rates are still very low,” Lipar added. “The rates we are offering to clients, mortgage rates, are about 50 basis points still lower than they were at this time last year, the pre-pandemic period when the market was still very strong.” One basis point equals 0.01%
Lipar, who has served as the homebuilder’s chief executive since 2009, said he believes the rate hike could somehow speed up buying.
“Even though the rates have gone up a bit, it… also gives buyers the urgency to go ahead and write a contract on a house because we see prices keep going up and rates going up,” he said. he explained.
The rise in these prices was partly the rising wood and labor costs because the demand environment has allowed LGI Homes to avoid absorbing them, Lipar said.
“For now, we think we are going to be able to pass these costs on to the consumer. The margins will remain consistent with LGI, but certainly looking at an average selling price which is likely to continue to increase,” he said. noted.
Last year, the company’s average selling price was $ 253,000, Lipar said. For 2021, LGI Homes expects this to be between $ 260,000 and $ 270,000, according to Lipar.
LGI Homes shares closed up 2.8% on Friday at $ 125.14 apiece. The stock has risen nearly 41% in the past 12 months.