Homebuyers didn’t get any relief in mortgage rates this week, leaving them with little choice to either move forward with their purchase plans at elevated rates or stick to the sidelines.
The rate on the 30-year fixed mortgage edged higher to 6.71% from 6.67% the week prior, according to Freddie Mac. Rates have swayed between 6% and 7% since the start of the year, showing little signs of softening this summer.
The high rates have kept many homeowners from listing their homes, driving up prices on what’s left in the market and creating unfavorable conditions for the buyers still on the hunt.
“That move-up buyer is pretty much gone,” Luis Padilla, CEO of Oceanside Realty and Padilla Team in Miami, told Yahoo Finance. “It’s what’s putting the brakes on the market and inventory.”
Rate-trapped homeowners stall inventory growth
The latest data showing homes that went into contract in May underscores the inventory challenges.
Pending home sales, a leading indicator of the housing market’s health, dropped 2.7% in May from the previous month, much more than what was expected. That’s largely because buyers couldn’t find enough homes to make a deal, NAR chief economist Lawrence Yun said, noting that each listing received three offers on average.
The shortages have persisted. There were 459,000 single-family homes on the market for the week ending June 26, according to Altos Research. While up 1.9% from a week prior, that’s 10% fewer homes compared with a year ago.
“Normally by mid June you’d have 10-20% more homes on the market than over the holidays,” Mike Simonsen, CEO of Altos Research, wrote in his blog. “But this year we have fewer.”
The biggest reason for the dearth of properties is reluctance from homeowners, most of whom have a much lower mortgage rate than the prevailing rate.
“That move buyer doesn’t want to give up that 3% mortgage rate,” Padilla said. “They would rather commute 30 minutes to work than pay hundreds more on a monthly mortgage payment.”
Buyers move on to new homes
So what’s a homebuyer to do? Many of them who are still in the market are looking at new builds.
That was one factor that pushed the volume of mortgage applications for purchases up 3% for the week ending June 23, according to the Mortgage Bankers Association (MBA). That’s the third week of increases and the highest level of activity since early May.
“New homes sales have been driving purchase activity in recent months as buyers look for options beyond the existing-home market,” MBA Deputy Chief Economist Joel Kan said in a statement. “Existing-home sales continued to be held back by a lack of for-sale inventory as many potential sellers are holding on to their lower-rate mortgages.”
Though new inventory offers a glimmer of hope, very few homes that are available are affordable to entry-level buyers.
Padilla noted that while the share of active listings had increased 19.5% in May in the Miami-Dade area, the average cost of a single-family home was $620,000, up 7.8% from a year prior. Prices for condos increased 6.5% to $415,000.
That tracks with national data this week showing prices have increased for three months in a row, making conditions worse for buyers out there.
“This is good news for homeowners gaining more equity,” Mark Fleming, First American’s chief economist, previously told Yahoo Finance. “But it will pressure affordability for the potential first-time homebuyer.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
Click here for the latest economic news and economic indicators to help you in your investing decisions
Read the latest financial and business news from Yahoo Finance
Source: finance.yahoo.com