Rising Mortgage Rates Won't Kill Housing: Hovnanian
Hovnanian Enterprises' chief executive on Tuesday expressed little concern over what impact an end to the Federal Reserve's bond-buying program might have on mortgage rates and in turn, the housing industry.
A variable mortgage can fluctuate with the benchmark interest rate set by the Fed, which has long cut rates or left them unchanged. If the Fed raises rates, though, the fear is that the interest rate on a mortgage could rise, discouraging potential homebuyers.
But CEO Ara Hovnanian, who has long presided over the sixth-largest American home builder and survived many a housing slump, said there is reason to believe mortgage rates could very well rise without any negative impact on the industry.
After the 1981-82 housing downturn, for example, mortgage rates were 13.4 percent on average in 1983 and yet there were roughly 1.7 million housing starts, he noted.
"Our mortgage rates are 4.4 percent. I think they could go up, as long as it doesn't go up in a shocking way," Hovnanian said on "Squawk Box." "If it goes up steadily and in small increments, which I think is a likely scenario, I'm not very concerned."
Housing demand is driven by population and household growth, Hovnanian explained, so demand for shelter will only increase as the population and households alike swell.
Meanwhile, he said the housing market has made a "huge recovery" since the bubble burst, but the turnaround is still in its early stages.
Take housing starts, for example. Currently, there are roughly 900,000 housing starts compared with 500,000 housing starts just two years ago, Hovnanian said.
"We're up dramatically from where we've been," Hovnanian said, adding market observers expect housing starts to average 1.6 million this decade. "So, we're still quite a ways underneath that."