Danielle Hale

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The historically busy summer real estate market is officially here, and with it comes a double dose of good news for buyers.

Mortgage rates fell for the third week in a row, hitting 6.67% for the average 30-year fixed-rate mortgage for the week ending June 22, according to Freddie Mac. That’s down from the previous week’s 6.69%.

And buyers can continue to celebrate last week’s significant milestone in home prices, when median listing prices declined for the first time in Realtor.com® data history (dating to 2017). And for the week ending June 17, prices declined even further by 0.9% from what they were a year earlier.

So what does this portend for buyers in today’s largely unforgiving real estate landscape? We’ll break down what the latest housing data means for homebuyers—and sellers—in our latest installment of “How’s the Housing Market This Week?”

The latest housing statistics

(Realtor.com)

Mortgage rates and home prices show slow and steady declines

On a micro level, mortgage rates barely ticked down week over week. But on a macro level, rates are down 0.12% since the week ending June 1, when rates were 6.79%.

And joining the real estate market’s inch-by-inch march toward affordability is the decline in median home prices, “with the typical asking price registering just less than 1% lower than one year ago,” notes Realtor.com Chief Economist Danielle Hale in her weekly analysis.

Last June saw median home prices hit an all-time high of $449,000—but as of May, that number has dropped to $441,000.

As Hale puts it, any decline is a welcome “listing-price relief” to cash-strapped buyers. However, “buying costs are still elevated.”

The reality check for new sellers

The decline in median home prices can be partly chalked up to sellers reducing asking prices on stale properties.

“This is a sign that home sellers are reacting to shifting market conditions and are at least somewhat aware that still-high mortgage rates mean higher monthly housing costs for buyers,” explains Hale.

Yet the fact that home prices are no longer rising might discourage some new sellers who were hoping to cash in on record-high home equity.

“In many respects, new sellers are catching up to the reality that recent sellers have already accepted,” adds Hale.

New listings continue to dwindle

Real estate’s less-rosy home-selling reality could be stopping some sellers from listing their homes entirely.

The week ending June 17 marked a grim milestone when it comes to new listings. For 50 weeks now, fewer homes have hit the market—down 26%—than at the same time last year.

“A smaller number of homeowners are choosing to list homes for sale, limiting the number of cumulative options that home shoppers are likely to see throughout their search,” says Hale.

Despite the lack of new listings for buyers to peruse, active inventory (a combination of new and existing listings) grew by 5% annually for the week ending June 17. Yet overall, that active inventory growth has slowed. 

The homes that make up that inventory spent 12 more days on the market for the week ending June 17, compared with the same week last year. That marks 48 weeks that it’s taken longer to sell a home. (In May, homes were on the market for an average of 43 days.)

‘Lower prices, fewer homes for sale’

While the pool of homes for sale continued to grow last week, the overall outlook for summer homebuyers looking for plenty of properties to choose from isn’t great.

In a nutshell, the number of homes for sale shot up in 2022, when mortgage rates were just beginning to climb—and buyers and sellers were desperate to lock in a low mortgage rate. Today, homeowners have less incentive to sell.

“This is a contributor to the big shift in expectations we have for inventory in 2023, which will likely decline for the year as a whole,” says Hale.

As for the near real estate future, she expects “lower prices, fewer homes for sale, and a somewhat slower pace of home sales than we originally projected in December.”

Source: realtor.com

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How much do you need to earn to afford a $500K home? The new hurdle is $152K, even as mortgage rates fall for the first time in weeks

Mortgage rates dropped this past week amid mixed economic data and uncertainty around the Fed’s upcoming decision to either raise interest rates again or take this month off.

“While the potential for another rate hike raises the prospect of increased mortgage rates, the objective of curbing inflation will ultimately lead to a decline in mortgage rates, bringing much-desired stability to the market,” says Realtor.com economist Jiayi Xu.

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Meanwhile, borrowers still contend with rates close to 7%, limiting the kind of home average families can afford.

Say you’re buying a $500,000 home. Assuming you have a 10% down payment and lock in a 30-year fixed mortgage at today’s average rate of 6.71%, you’d have to pay about $3,800 a month after property taxes and home insurance, according to estimates from Zillow.

Considering that most lenders want you to keep your housing expenses at or under 30% of your gross income, you’d need to earn at least $152,000 a year to afford that $500,000 home.

30-year fixed-rate mortgages

The average 30-year fixed rate slipped to 6.71% this week, according to the latest data from Freddie Mac, compared to last week’s average of 6.79%.

A year ago at this time, America’s most popular home loan averaged 5.23%.

“Even though the strong employment data suggests that households are in a favorable position to assess their housing options, the overarching concern of affordability continues to impose limitations on homebuyers,” says Xu.

Realtor.com reports the median listing price grew just 0.2% year-over-year — its slowest pace ever recorded (since 2016).

But “while the growth slowed to a halt, the homebuying costs haven’t come down.”

15-year fixed-rate mortgages

The average rate on a 15-year home loan also lowered from 6.18% to 6.07% this week. This time a year ago, the 15-year fixed-rate averaged 4.32%.

“While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers,” says Sam Khater, Freddie Mac’s chief economist.

New listings for sale have fallen 25% from last year — marking their lowest level of any early June on record — according to Redfin.

This has also driven the total number of homes on the market down 5% since a year ago to its lowest level on record for early June.

Read more: Americans refuse to let higher prices derail their travel plans — 10 tactics to keep your summer vacation on budget

Shortage for middle-income buyers

The U.S. housing crunch affects middle-income buyers more than any other income bracket — with a shortage of about 320,000 affordable homes, according to a report from the National Association of Realtors (NAR).

That’s any home priced at $256,000 or less, which NAR considers an affordable range for middle-income buyers, or households earning up to $75,000 a year.

Currently, middle-income buyers can afford less than a quarter of listings — compared to five years ago, when the group could afford to buy about half.

“Ongoing high housing costs and the scarcity of available homes continues to present budget challenges for many prospective buyers, and it’s likely keeping some buyers in the rental market or on the sidelines and delaying their purchase until conditions improve,” says Realtor.com chief economist Danielle Hale.

“Those who are able to overcome affordability constraints may be increasingly drawn to newly constructed homes or to the suburbs and beyond, both of which may offer buyers more realistic opportunities for homeownership in the near term.”

Mortgage applications still declining

Demand for mortgages decreased 1.4% from last week, according to the Mortgage Bankers Association (MBA).

“Overall applications were more than 30% lower than a year ago, as borrowers continue to grapple with the higher rate environment,” says Joel Kan, vice president and deputy chief economist at the MBA.

“Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers.”

Refinance activity similarly fell by 1% — and is 42% lower than the same week a year ago.

What to read next

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Source: finance.yahoo.com

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Fears over the coronavirus have struck fear into investors and rattled financial markets across the world. And with 103 confirmed cases in the U.S. as of Tuesday, there are worries that the near-pandemic will likely impact housing markets too.

So far, coronavirus fears have already resulted in mortgage rates falling, as investors are pulling money from stocks and putting it into safer U.S. Treasury bonds. And when bonds perform well, mortgage rates traditionally fall, realtor.com noted.

National
Association of Realtors Chief Economist Lawrence Yun told realtor.com
that while the coronavirus might affect sales in some markets, the
low mortgage rates are likely to entice more buyers and sellers.

“Mortgage
rates likely will fall to an all-time low, and buyers will want to
lock in, even with growing economic concerns,” Yun said. “But
expect far fewer international buyers because of travel concerns.”

However,
others said the situation with the stock market is a concern.

“People
don’t make big decisions in a vacuum, and buying a home is a big
one,” said Danielle Hale, realtor.com’s chief economist. “If
the stock market is flashing a sign that an economic slowdown is on
the way, that’s when Main Street will feel it. And it could lead to
a slowdown in home sales.”

The
most vulnerable segment of the market could be the luxury home
sector, as wealthier buyers tend to have more money invested in
stocks. And if they’re feeling less wealthy, that makes them less
likely to splurge on a new home, Hale said.

Still,
the shortfall of wealthy and foreign buyers could be made up by those
who’re enticed by the lower mortgage rates. Last week, the NAR
reported that contract signings in January were up 5.2% compared to
the month before, and up 5.7% from a year ago. The 30-year fixed-rate
mortgage fell to 3.45% last Thursday, Freddie Mac reported.

“Buyers
right now are trying to juggle whether or not they should jump in
when mortgage rates are this low,” said Ali Wolf, director of
economic research at Meyers Research. “What looks like a home
that’s out of reach may actually be very affordable on a monthly
payment schedule.”

Low
mortgage rates could cause a boost in home sales in the short term,
Hale said, but it depends on how much the virus continues to spread
in the U.S.

“At
the very least, the coronavirus could cause some people to put home
sales on hold,” Hale said.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
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Source: realtybiznews.com

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The Federal Open Market Committee on Wednesday raised the federal funds rate for the first time in four years, marking an end to the easy money that gave rise to the hottest mortgage market in U.S. history.

The FOMC, as was predicted, raised the federal funds rate by 25 basis points to 0.25-0.50 percent, the first time the FOMC has changed the federal funds rate in two years, and the first rate hike since March 2018.

The move, designed to slow the pace of inflation, which reached 7.9% for the year that ended in February, is sure to increase the cost of mortgage borrowing. Whether it slows the frenetic pace of a housing market with historically low supply is yet unclear.

“The Fed worked to ensure today’s announcement would not be a surprise, with the rate hike following a series of foretelling decisions, including its acceleration of asset tapering in December through the end of its asset purchase program earlier this month,” Realtor.com‘s chief economist Danielle Hale said in a statement following the announcement.

“The Fed’s language in its public statements has also prepared markets for rate increases by consistently focusing on above-target inflation and progress against labor market goals. This also meant that mortgage rates have largely adjusted for the first hike, and I don’t expect a spike following the latest announcement.”

Beyond the initial 25 bps rate hike, the Fed also said it planned to raise rates six additional times in 2022 and three times in 2023, giving more certainty to investors in the secondary market, which should help ease overall volatility somewhat.

How should the current market impact lenders’ tech adoption?

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Presented by: Polly

“With the unemployment rate below 4%, inflation nearing 8% and the war in Ukraine likely to put even more upward pressure on prices, this is what the Fed needs to do to bring inflation under control,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association. “The FOMC economic projections indicate slower growth and higher inflation than had been the expectation at their December meeting. Note that they do not expect to be back at 2% inflation until after 2024.”

Big questions remain, however. It’s still not entirely clear how quickly the Fed will unwind its $9 trillion balance sheet. The Federal Reserve said it would “begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting,” but did not get more specific.

“Although we anticipate that shrinking the balance sheet will begin this summer, we will be looking for details regarding the pace of the runoff and whether they would consider active MBS sales at some point to return to an all-Treasury portfolio,” said Fratantoni.

The purchases of Treasuries and MBS, which ended this month and were designed to support the economy during the Covid-19 pandemic, helped the housing and mortgage markets reach never-before-seen heights.

Fueled by a sharp drop in mortgage rates during the pandemic, the U.S. mortgage industry funded $4.1 trillion in new loans in 2020 (64% refis, 36% purchases), and $3.9 trillion in 2021 (57% refis, 43% purchases), according to the MBA.

But refi applications fell to about one-third of rate locks in February, and lenders have switched gears to serve a heavy purchase market. And that market is largely defined by a dearth of inventory.

On Friday, Zillow reported that overall housing inventory dropped to 729,000 home listings in February, a 25% drop year-over-year and a 48% fall since February 2020. It was the fifth consecutive drop in inventory.

Though the rise of mortgage rates – the MBA anticipates rates to hover around 4.5% for the next year – will force some would-be buyers out of the purchase market, other factors appear more important.

“Mortgage rates have already been increasing for many reasons — improving economy, higher inflation expectations and Fed tightening,” said Odeta Kushi, deputy chief economist of First American Financial. “As rates rise, some buyers on the margin will pull back from the market and sellers will adjust price expectations, resulting in a moderation in house price appreciation.”

But, Kushi added: “The other implication of a rising mortgage rate environment is the rate lock-in effect. Many homeowners have locked into historically low rates, and are less likely to move as rates move higher — this does not bode well for housing supply.”

Source: housingwire.com

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Apache is functioning normally

Mortgage rates keep climbing amid rising inflation, war in Ukraine, and disruptions to the supply chain, and there’s no sign that they’ll fall anytime soon.

The latest weekly Freddie Mac PMMS mortgage survey, released Thursday, showed that the average purchase mortgage rate touched 4.67%, up 25 basis points from the week prior. That was the highest reading since December 2018, according to Freddie Mac.

The GSE’s index accounts for just purchase mortgages reported by lenders over the past three days. Black Knight‘s Optimal Blue OBMMI pricing engine, which considers refis and data from the Mortgage Bankers Association, reported that rates on Wednesday averaged 4.81%, up about 10 bps from a week prior.

And several loan officers who spoke to HousingWire this week said they had clients lock rates in the 5.1% range this week, though many homebuyers with ample cash reserves are buying down mortgage points.

The central bank has signaled that it will raise interest rates another six times this year and several more in 2023 to control inflation, which reached the highest level in 40 years in February, at 7.9%.

Normally, a period of rising mortgage rates cools housing prices. But this is no normal market. The March national median listing price for active listings was $405,000, up 13.5% compared to last year and 26.5% compared to March 2020, according to Realtor.com economist Danielle Hale. In large metros, median listing prices grew by 9.1% compared to last year, on average.

Why lenders should think about non-QM now, not later

Agency rates are on the rise and refinance volume is down. Originators who had their best year in 2021 will have to utilize something else to make up for this loss in 2022 and non-QM can be the answer. 

Presented by: Angel Oak

The problem, of course, is inventory. National inventory of active listings declined by 18.9% over the last year in March, while the total inventory of unsold homes — including pending listings — declined by 12.5%, according to Realtor.com. The inventory of active listings was down 62.3% compared to 2020 at the onset of the pandemic, even though demand remains high.

The latest Mortgage Bankers Association survey this week found that while interest in refi mortgages fell 15% from the prior week, interest in purchase mortgages rose a modest 0.68%.

According to the PMMS report, the average 15-year fixed-rate mortgage averaged 3.83%, up 20 bps from the prior week. (On average homebuyers paid 0.8 mortgage points.) The 5-year Treasury-indexed ARM averaged 3.50%, up from 3.36% a week prior.

Source: housingwire.com

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Apache is functioning normally

Mortgage rates have finally dipped, after three panic-inducing weeks of climbing upward.

For the week ending June 8, the average 30-year fixed mortgage rate sank to 6.71%, down from the previous week’s 6.79%, according to Freddie Mac.

And that’s not where the good news ends.

Home price growth, which has been spiraling skyward since the COVID-19 pandemic, has also “slowed to a halt,” according to Danielle Hale, chief economist for Realtor.com® in her recent analysis of the latest housing data.

Indeed, median listing prices came in a mere 0.2% higher for the week ending June 3 compared with this same week last year. That’s the lowest level in the history of Realtor.com data, which goes back to 2016.

Yet despite this double dose of good news, Hale points out that “homebuying costs haven’t come down.” In fact, today’s buyers who make a 20% down payment will still pay about $280 more per month than they would have last year.

Here’s what these statistics mean for homebuyers and sellers in our latest installment of “How’s the Housing Market This Week?”

How high mortgage rates have changed homebuyer priorities

Although home prices seem to be finally leveling off a bit, the median listing price is still high, coming in for May at a median of $441,000.

High home prices combined with high mortgage rates have pressured many homebuyers to adjust their home-shopping priorities. For many now, their only priority seems to be finding a bargain.

“Affordability has evolved into an increasingly important factor that influences people’s decision-making processes when searching for homes,” says Hale. “In order to attain homeownership, a higher share of online shoppers were drawn toward more affordable markets compared to a year ago.”

Affordability explains why markets in the relatively budget-friendly Northeast have been heating up of late, while markets in the South and West have cooled. Yet hot markets tend to drive home prices higher, so it may be only a matter of time before the balance shifts.

Last month, median home prices in the Northeast shot up by double digits compared with one year ago, while prices in the South and West showed low single-digit growth.

Although many buyers are finding success by scrounging for deals, other buyers are simply pausing their search until interest rates subside.

“Worries about high inflation, rising interest rates, and escalating home prices have caused many prospective buyers, especially more first-time buyers, to postpone their plans to purchase a home,” said Hale.

How high mortgages affect home sellers

Homebuyers aren’t the only ones feeling deflated. Home sellers have also been pulling back from the market, as the number of new listings has declined for 48 straight weeks. For the week ending June 3, new listings are down by 25% compared with a year ago.

“Many remain skittish about listing since it would mean trading in their low mortgage rate for something much higher,” says Hale.

Although new listings are down, overall housing stock (which includes listings both new and old that have been lingering on the market) is 13% higher for the week ending June 3 than the same week last year. But unless more new listings hit the market soon, even overall inventory will soon suffer.

“The ongoing decrease in new listings has restrained the growth of active inventory,” says Hale. “And there is a possibility of further deceleration in the upcoming weeks.”

The pace of home sales slows further

The homes that are still for sale continue to linger—and linger. For the week ending June 3, homes spent 14 more days on the market compared with the same time last year. This marks a 46-week streak of homes taking longer to sell compared with the same week the previous year.

Yet although things are slowing, homes remained for sale for about 43 days in May, which is still faster than the average May from 2017 to 2019.

“Homes are still selling faster than the pre-frenzy norm, emphasizing the persistent supply-demand imbalance,” says Hale.

And this means that those homeowners who do decide to sell at an affordable price will likely be greeted by plenty of buyers looking to make an offer.

Meanwhile, all those homebuyers searching high and low for bargains might want to give those stale listings a second look, and gamble that lowballing might actually work.

Source: realtor.com

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Today’s homebuyers are learning that finding a move-in ready home in a good location that they can comfortably afford is about as rare as a winning Powerball ticket.

A dire housing shortage has kept prices strong and competition fierce among buyers despite high mortgage interest rates. That’s left less than a quarter of the roughly 1.1 million home listings within financial reach of the typical American household, according to a recent joint report from the National Association of Realtors® and Realtor.com®.

The housing market is short about 320,000 listings within the price range of buyers earning the median household income of $75,000 a year. These buyers can generally afford homes up to $256,000. (Listings for single-family homes, condos, townhomes, row homes, and co-ops included only existing homes and did not encompass new construction.)

“The country has the largest shortage of homes in the price range that middle-income buyers can afford,” says NAR Senior Economist Nadia Evangelou. “That can explain why the competition is strongest for these homes.

“We hear again and again that in order to address the housing affordability issue we need to add more housing to the market,” she adds. “We need to add more homes that middle-income buyers can afford.”

Even those making $100,000 can afford only about 38.6% of the homes on the market. And those needing mortgages are faced with rates nearing 7% for 30-year fixed loans, pushing monthly mortgage payments up into the stratosphere.

The problem has worsened significantly over the past five years. In 2018, there were about 810,000 homes on the market that middle-income buyers could afford. That’s compared with nearly 263,000 in April of this year.

The affordability crunch is even worse for people of color. About two-thirds of Black Americans and 59% of Hispanic Americans have household incomes below $75,000. That’s compared with 48% of white Americans and 37% of Asian Americans.

“Our country needs to add at least two affordable homes for middle-income buyers for every home listed for upper-income buyers,” Evangelou says.

Where middle-income buyers can find the fewest affordable homes for sale

San Jose, CA

(Getty Images)

Not surprisingly, the nation’s most expensive metropolitan areas had the fewest homes priced for middle-income buyers. In the whole state of California, just 3.7% of all home listings in April were affordable for buyers earning $75,000 or less.

The issue was the most acute in Silicon Valley’s San Jose, where there was just one home listing priced for buyers earning $75,000 in the entire metropolitan area. (NAR and Realtor.com looked at the 100 largest metros for their analysis. Metros include the main city and surrounding towns, suburbs, and smaller urban areas.)

The lack of affordable homes isn’t surprising as the median price in the metro was $1.53 million in May, according to Realtor.com data, which includes new construction.

In Oxnard, CA, 0.2% of homes were affordable for middle-income buyers. It was 0.6% in San Diego, 1% in San Francisco, and 1.2% in Los Angeles.

However, residents in these more expensive areas generally make more money to keep up with the higher cost of living. The median household income in these areas is typically more than $100,000, says Evangelou.

Even in less expensive, yet still pricey areas, there was a dearth of real estate priced for middle-income buyers: just 1.2% of homes in Seattle; 1.3% of homes in Austin, TX; 2% of homes in Boise, ID, and Salt Lake City; and 2.6% of homes in Sacramento, CA.

“In these very expensive areas, especially middle-income buyers can afford to buy very few listings,” says Evangelou. “It’s very difficult.”

Where middle-income buyers can find the most homes for sale

Youngstown, OH

(Getty Images)

Buyers on a budget will find the greatest selection of affordable homes in the cheaper parts of the country, such as the Rust Belt and Deep South.

In West Virginia and Ohio, more than half of the homes for sale in April were affordable for middle-income buyers. About 59.3% and 55.6% of listings were priced right respectively in those states.

“Some of these areas have an oversupply of housing,” says Evangelou.

In the Youngstown, OH, metro, nearly three-quarters of the homes for sale, about 72%, were within reach of middle-income buyers. In May, the median home price in the metro was $162,450—about a third of the national median price tag of $441,445 in May, according to Realtor.com data.

The metro was followed by Akron, OH, at 61.4%; Toledo, OH, at 60.7%; Cleveland, at 58.6%; and Syracuse, NY, at 54.4%. Rounding out the top 10 were Scranton, PA, at 53.5%; Dayton, OH, at 53%; Pittsburgh, at 52.2%; Rochester, NY, at 51%; and Detroit, at 49.3%.

“Ongoing high housing costs and the scarcity of available homes continues to present budget challenges for many prospective buyers, and it’s likely keeping some buyers in the rental market or on the sidelines,” Realtor.com Chief Economist Danielle Hale said in a statement.

“Those who are able to overcome affordability constraints may be increasingly drawn to newly constructed homes or to the suburbs and beyond, both of which may offer buyers more realistic opportunities for homeownership.”

Source: realtor.com

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Washington, DC
CNN
 — 

The Federal Reserve hiked its benchmark lending rate this week for the seventh time this year, capping a year of intense pressure on the housing market that pushed mortgage rates above 7% for the first time since 2002.

But now that the Fed has signaled a softer approach to cooling the economy instead of rolling out bumper rate hikes, potential home buyers are left to wonder: Will mortgage rates come back down? Or have buyers missed their chance?

No one knows exactly where mortgage rates will go in the months ahead. But most experts agree that we have seen the end of 3% mortgages for some time.

Mortgage rates have run up so far and so fast this year that many would-be homebuyers can no longer afford to buy a home. At the end of 2022, when rates were at 3%, few predicted that just a year later rates around this week’s 6.33% would come as a relief, having dropped from over 7%.

After starting the year at an average 3.22%, according to Freddie Mac, the 30-year fixed-rate mortgage took off last spring as the Federal Reserve embarked on a historic campaign to battle decades-high inflation by raising interest rates. By fall, mortgage rates had more than doubled, eventually topping 7% in October. Rates have receded slightly in recent weeks, but loans are still expensive — especially compared to the historically low rates buyers were getting during the pandemic.

Home shoppers have watched their buying power evaporate, with higher rates adding hundreds of dollars onto what they would pay each month.

High mortgage rates remain the primary impediment to home buying, according to a recent buyer and seller sentiment survey conducted by Fannie Mae. Homebuying and home-selling sentiment are both significantly lower than they were last year.

Based on the survey, people in the real estate market continue to expect mortgage rates to rise but home prices to decline, said Doug Duncan, Fannie Mae senior vice president and chief economist.

He said he expects mortgage demand to be dampened by affordability challenges, while “homeowners with significantly lower-than-current mortgage rates may be discouraged from listing their property and potentially taking on a new, much higher mortgage rate.”

Is this the new normal?

While the Fed’s rate hikes are expected to continue, many analysts anticipate they will be smaller than the recent bout of three-quarter-point hikes and will start to taper off as inflation starts to cool, which should mean mortgage rates will likely come down too.

The Fed does not set the interest rates borrowers pay on mortgages directly. But its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

If rates do drop, just how low will they go?

“If inflation continues to decelerate over the next several months, mortgage rates will likely stabilize below 7%,” said Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors. “That’s still double the previous year’s rate, but it’s better than an 8% rate, which is the historical average for the 30-year fixed mortgage.”

Looking ahead, Melissa Cohn, regional vice president at William Raveis Mortgage, said buyers should expect rates to level off in 2023 around where they were in the years before the pandemic — around 4% or 5%.

“We had an active and healthy real estate market then,” she said.

But Cohn said she does not expect a “meaningful” decline in mortgage rates until the third or fourth quarter of 2023. “Mortgage rates will drop a bit in December, we’ll see a brief flurry of activity, but there are likely to be more increases in the new year.”

And don’t expect to see rates drop at the same speed at which they rose this year, she said.

“We have to remember mortgage rates come down much slower than they go up,” said Cohn. “Banks will want to see proof that rates are meaningfully coming down and not a one-shot wonder.”

The weekly swings in mortgage rates this year have been about three times the size of those seen in a typical year, said Danielle Hale, chief economist at Realtor.com. The Fed’s extra-large rate hikes aren’t the only thing causing that.

Economic uncertainty is creating a larger gap or “spread” between the 10-year Treasury yield and mortgage rates. Typically, mortgage rates are about two percentage points above the 10-year Treasury yield, but recently the gap has been wider.

The main driver of the widening spread is greater interest rate risk, according to a recent report from the Urban Institute.

“The uncertainty about the effects of Fed policy to date and about the trajectory of future policy has resulted in large movements in interest rates,” wrote Laurie Goodman and Michael Neal, the report’s authors.

Consumer mortgages are packaged and sold off to investors. The higher myeortgage rates are, the more money investors can make. But as rates fall, more homeowners will choose to prepay their mortgages or refinance, making the loans less attractive to investors.

“Volatility increases the level of mortgage rates, compared to Treasury rates, because of the prepayment option,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business. “If you’re in a new loan at 7% and rates go to 6%, you may choose to prepay and refinance into a lower rate.”

It is abnormal to have such a large spread, said Lawrence Yun, chief economist for NAR, adding that other times when the spread was wider were during the 2008 financial crisis and the early days of the pandemic.

“Hopefully this large spread will dissipate by the spring home buying season,” he said. “If so, maybe buyers will face mortgage rates in the 5’s.”

What buyers can expect

Lisa Sturtevant, chief economist at Bright MLS, a multiple listing service in the mid-Atlantic region, also expects mortgage rates to fall further in 2023, but she doesn’t expect them to drop quickly.

“We were in unprecedented territory with rates under 3%,” she said. “There is no reason to suggest we will be back there. But they will be down from where we’ve been.”

“Housing market activity will continue to be relatively sluggish — even if mortgage rates do begin to come down — since so many existing homeowners are locked into sub-3% loans and will still not be eager to move into a higher rate,” she said.

As a result, the inventory of available homes for sale will remain tight into 2023. In many markets this could guard against prices dropping by a significant amount.

“Prospective buyers may be tempted to try to ‘time’ rates to jump into the market when rates dip,” she said. “But timing rates is difficult.”

Instead, would-be buyers should shop around, getting quotes from multiple lenders, including different types like a large national bank, an online lender or a community bank or credit union.

“There is a lot of variability in rates, terms, and mortgage products in this changing market,” Sturtevant said. “It is more important than ever that buyers compare offers from different lenders to find the financing that works best for them.”

Source: cnn.com

Apache is functioning normally

It’s getting tougher for house hunters to find a home to buy, particularly in large cities, as the housing industry faces a dearth of inventory.

The number of homes for sale in 2023 decreased in 21 of the 50 largest metropolitan areas compared to this time last year, according to a new report from Realtor.com. San Jose, California, saw the steepest decline, with 35% fewer homes listed for sale this year. Sacramento, California, ranked second highest, with a decline of 27%; followed by Hartford, Connecticut, where listings were down 26%.

Real estate agents in those cities told CBS MoneyWatch that in addition to inventory declines, elevated home prices and mortgage rates have changed the way buyers shop and quelled sellers’ eagerness to sell.

“In Sacramento, homes under $500,000 are moving very quickly because buyers in that price range don’t have a lot of options,” said David Orr, an agent for Redfin in Sacramento. “The inventory is really tight because sellers are hesitant to list their current home when they have such a low interest rate.”

according to Realtor.com. 

4 cities where it’s cheaper to buy a home than rent

03:21

While competition for houses is intense in California’s capital city, Orr said buyers are being cautious about their bids and asking sellers to help with closing costs or to pay for a lowered interest rate.

“I am seeing multiple offers, but it’s not like last year, when everyone was like ‘Hey I’m going to give you a first-born child along with this offer,'” he said “Now, people are making offers a bit above or below the asking price.” 

Bidding wars are new norm

Braxton Warren, a real estate agent at Compass, said Sacramento homes are priced lower than nearby Seattle and San Francisco, which is also fueling hot competition there.  

“House hunters have acknowledged the shortage of options but have come to accept the reality of the situation,” Warren told CBS MoneyWatch. “Homes are under a bidding war with 20-30 buyers all in line for the same home.”

Meanwhile, in Connecticut, the Hartford area “has witnessed a significant decrease in inventory, resulting in a transformative market shift,” said David Krasnoff, a realtor at Compass. 

“Bidding wars have become the norm as every reasonably priced home brings in multiple offers, often exceeding the listing price,” Krasnoff said. 

Other cities that saw year-over-year inventory declines are:

  • San Diego (26%)
  • Milwaukee (23%)
  • Cincinnati (23%)
  • San Francisco (20%)
  • Chicago (18%)
  • Washington, D.C. (16%)
  • Rochester, New York (13%)
  • Seattle (11%)
  • Providence, Rhode Island (11%)
  • New York City (10%)
  • Los Angeles (10%)
  • Baltimore (8%)
  • Philadelphia (6%)
  • Detroit (5%)
  • Boston (4%)
  • Virginia Beach, Virginia (2.5%)
  • Minneapolis (2%)
  • Riverside, California (1%)
  • Cleveland (.5%)

Cities where the number of homes for sale increased were mainly in the South, including Austin, Texas; Birmingham, Alabama; Jacksonville, Florida; Nashville; and San Antonio. 

More women join construction industry as worker shortage keeps home prices high

03:01

A nationwide lack of inventory has become a major headline in the housing market with homebuyers now facing a triple whammy of higher mortgage rates, elevated asking prices and few options from which to choose.  

Inventory overall grew in May when compared to a year ago but the rate of growth has slowed over the past three months, according to Realtor.com. A shortage of skilled workers in the construction industry is partly to blame for the decline in new homes for sale, the National Association of Home Builders has said.

Despite higher prices, more than 4.2 million people bought houses in April, according to the National Association of Realtors. 

“The good news for sellers is that buyers are still out there and this month’s slower growth in the active inventory of homes for sale indicates that shoppers are in the market and actively searching for homes that fit their needs and budget,” Danielle Hale, Realtor.com’s chief economist, said in a statement. 

Khristopher J. Brooks

Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.

Source: cbsnews.com