The housing market experienced a shift this
week as mortgage rates saw an increase after
a steady decline for over a month. According
to Freddie Mac, the average 30-year fixed
mortgage rate rose to 6.39% from 6.27% the
previous week. The rate had been steadily
declining since early March, but the recent
uptick in rates came after several Federal
Reserve members hinted at the need for
further interest rate hikes to control inflation.
This increase in rates caused some rate-
sensitive buyers, who had briefly returned to
the market, to put off their purchasing plans
once again. Additionally, homeowners remain
hesitant to sell, further exacerbating the
already acute inventory shortage in the current
spring season.
As Sean Dycus, a realtor at Mainstreet
Properties, noted, there was a surge of buyers
a month and a half ago, but the interest has
since dwindled. While buyers are still active in
the market, there may be fewer listings coming
on as homeowners hold back from listing their
properties due to the increased rates.
Overall, the housing market has experienced a
shift due to the recent increase in mortgage
rates. The rate-sensitive buyers have
retreated, while homeowners are holding back
from selling, leading to a shortage of inventory
in the market.
Buyers retreat as rates surge:
Last week's increase in mortgage rates has
caused would-be buyers to hold off on
purchasing homes, indicating that affordability
continues to be a primary concern in the
housing market this year. The Mortgage
Bankers Association's survey for the week
ending April 14 found that the volume of
purchase applications decreased by 10% from
the previous week. Overall, purchase demand
was 36% lower than the same period last year
on a seasonally unadjusted basis.
Joel Kan, MBA's deputy chief economist, said in
a statement that "affordability challenges
persist and there is limited for-sale inventory in
many markets across the country, so buyers
remain selective on when they act." He also
noted that the 10% drop in applications for
mortgages backed by the Federal Housing
Administration, which have less stringent
requirements, and the increase in the average
purchase loan size to its highest level in a
month, signal that "first-time buyers have
pulled back."
In addition to first-time buyers, investors or
buyers looking to purchase higher-end
properties may also have difficulty qualifying
for loans this spring due to the narrower
spread between jumbo loans and conforming
30-year fixed rate loans compared to a year
ago. This means that lending standards for
these loans are stricter as banks reduce their
willingness to hold jumbo loans.
Kan expects this trend of narrowing spreads to
continue, indicating that higher-end buyers
may face greater challenges in securing loans
in the coming months. Overall, the housing
market is facing a challenging period due to
affordability concerns, inventory shortages,
and tighter lending standards.
Inventory challenges remain:
With the recent increase in mortgage rates,
homeowners are becoming more reluctant to
sell their homes and give up their current
mortgage rates. The impact is evident in new
listing data, which shows that only 66,000
single-family homes were newly listed on the
market this week, according to Altos Research.
Of those, 25% were already under contract. In
comparison, a year ago at this time, there
were 100,000 new listings with 30% already
under contract.
Despite the high demand, there is a shortage
of available inventory, making it difficult for
buyers to find deals with newly emboldened
sellers. Builders are also pulling back their price
reductions as the selling season approaches,
according to the National Association of Home
Builders. In April, 30% of builders reduced their
home prices, down from 31% in March and
February, 35% in December, and 36% in
November. The average price reduction was
6% in April, down from 8% in December.
Fannie Mae's Senior Vice President and Chief
Economist, Doug Duncan, believes that while it
varies from region to region, home prices at
the national level may fall 1% or 1.5% by the end
of the year. Despite this, 59% of builders are
using incentives to attract buyers, which may
present an opportunity for those still in the
market.
According to realtor Sean Dycus, investing in a
new house may be worth considering since
buyers can receive incentives from the builder
and potentially get a better rate on the house.
However, it may be more challenging to find
deals on existing homes, especially if
competition is high. Overall, the housing
market is facing challenges due to inventory
shortages, high demand, and rising mortgage
rates, making it difficult for buyers to find
affordable deals.
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