Mortgage rates jumped higher this week, further dashing homebuyers’ hopes for an affordable spring home-shopping season.
Rates for a 30-year fixed-rate mortgage averaged 6.57% for the week ending May 25, according to Freddie Mac. That’s a hefty hike upward from last week’s 6.39%. As if that weren’t worrisome enough, Mortgage News Daily (which tabulates rates daily rather than weekly) pinned the average 30-year fixed rate even higher, at 7.12% on Thursday afternoon.
These numbers are a cruel twist given they arrive just as home prices seem to be drifting back down to earth.
“Recent momentum has home prices on a trend to dip below year-ago levels in a matter of weeks,” Realtor.com® Chief Economist Danielle Hale noted in her most recent analysis of housing data for the week ending May 20. “But while many homebuyers will certainly welcome a lower price tag, higher mortgage rates may minimize or erase any potential savings.”
When will buyers catch a break? When will homeowners decide to take the plunge and become sellers? Here’s what the latest real estate statistics seem to be saying in this edition of “How’s the Housing Market This Week?”
Home price gains keep grinding lower
In April, the median price of homes for sale came in at $430,000. Yet for the week ending May 20, listing prices were up just 0.7% compared with a year ago.
Home price gains keep shrinking, and Hale isn’t the only one expecting them to fall below year-ago levels soon. The economics team at Freddie Mac is forecasting a 2.9% decrease in national home prices over the course of 2023.
Of course, as Hale points out, all real estate is local; no one buys a “national” home.
Prices in the Midwest and Northeast remain more affordable, but they are gaining by double digits as these markets heat up. Meanwhile, prices in the West and South, which grew exponentially during the COVID-19 pandemic, are moderating or even falling now.
Why home sellers aren’t listing
The entire housing market would benefit if more homeowners decided to list their homes for sale, but few seem willing to volunteer.
For the week ending May 20, the number of new listings was down 26% versus the same time last year. There have been fewer listings compared WITH 2022 for almost an entire year now, thanks largely to the spike in mortgage rates.
“With roughly two-thirds of existing homeowners holding onto a mortgage more than 2 percentage points below current mortgage rates,” Hale said, “it’s easy to see why new listings lag behind.”
The slowing pace of home sales
Granted, overall inventory (comprising both new listings and older ones that have been lingering ) is up by 20% over last year. But the fact that many of those listings are stale suggests that buyers have already picked over these clunkers and passed.
And the slowing pace of sales suggests that home-shopping enthusiasm is on the wane.
In April, homes lingered on the market for a median of 49 days. And for the week ending May 20, listings spent an extra 15 days on the market compared with this same week last year.
Just how high might mortgage rates go?
Will homebuyers get rate relief anytime soon? Most signs point to not likely.
Just a month or so earlier, some economists predicted mortgage rates would dip lower later this year. But now, the Freddie economists aren’t so sure. They now forecast a scenario in which “long-term interest rates move largely sideways, staying in a range similar to where rates are today, perhaps moving up or down by around half a percentage point.”
Yet despite the gloomy outlook, determined buyers are finding ways to navigate today’s dismal market. Some are sifting through stale listings and lowballing. Others are exploring a whole new possibility they might not have considered before: new-construction homes.
“Even though existing home sales have waned in recent months, new-home sales have ticked up,” said Hale. “Buyers grappling with low inventory look to new construction as a relief valve.”
Given builders can sometimes offer discounted mortgage rates through preferred lenders, new construction might even cost less than pre-existing homes in certain areas today. This should give all homebuyers hope that the right house is out there, provided they keep looking and leave no stone unturned.
Source: realtor.com