LGI Houses CEO sees demand staying sturdy as mortgage charges tick up

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Eric Lipar, chairman and CEO of LGI Homes, told CNBC on Friday that he believes residential property demand will remain robust amid rising mortgage rates.

A day earlier, Freddie Mac reported that the 30-year fixed-rate mortgage had hit its highest level since July after falling 3%. And on Wednesday, the Mortgage Bankers Association seasonally adjusted index showed that the total volume of mortgage applications was essentially unchanged last week.

The real estate market was one of the bright spots of the US economy during the coronavirus pandemic, triggered in part by increased geographic flexibility and record-low borrowing costs. However, a recent surge in US Treasury bond yields has caused some to think about the real estate impact.

“Still a very strong demand that we see in the real estate market,” said Lipar in an interview about “Closing Bell”.

Texas-based LGI Homes has a presence in nearly 20 states, mainly in the southern and western United States. While the company focuses on first-time buyers, strength is being monitored across price points and regions, according to Lipar.

“I think historically the rates are still very low,” added Lipar. “The interest rates that we offer our customers, the mortgage rates, are still around 50 basis points lower than they were at that time last year, the prepandemic, when the market was still very strong.” One basis point equals 0.01%

Lipar, who has served as the construction company’s general manager since 2009, said he thinks the rise in interest rates could in some ways speed up purchases.

“While prices have gone up a bit, it also gives buyers the urgency to contract a home as prices keep going up and prices going up,” he explained.

Raising these prices was partly the increase in wood and labor costs as the demand environment has allowed LGI Homes not to absorb them, Lipar said.

“Right now we believe we can pass these costs on to the consumer. Margins will stay in line with LGI, but certainly with an average selling price in mind that is likely to continue to rise,” he said.

Last year, the company’s average retail price was $ 253,000, Lipar said. For 2021, LGI Homes expects a drop of between $ 260,000 and $ 270,000, according to Lipar.

LGI Homes shares closed 2.8% on Friday to $ 125.14 apiece. The stock is up nearly 41% over the past 12 months.