The housing market's landscape is shifting, and savvy investors are scrutinizing every move for potential red flags. This week, a jarring development has ignited concerns: mortgage rates skyrocketed past the 7% mark for the first time since December 2023. Freddie Mac reported the average rate for a 30-year fixed home loan soared from 6.88% to a staggering 7.10% – a massive blow to homebuyers yearning for an affordable abode this spring.
Expert Insights
Sam Khater, Freddie Mac's chief economist, painted a grim picture: “As rates trend higher, potential homebuyers are deciding whether to buy before rates rise even more or hold off in hopes of decreases later in the year.” However, amidst the turmoil, a glimmer of hope emerges – a growing inventory of homes for sale, with prices holding steady.
Sabrina Speianu, Realtor.com's economic data manager, offers reassurance: “Fortunately, buyers will find more options than last year, and prices are staying about the same.” Yet, she cautions, “Affordability issues will stick around until mortgage rates drop more significantly.”
Inflation: The Culprit Behind the Rate Spike
The culprit behind the rate spike? Inflation, the recurring villain in this saga. “Lingering high inflation rates have deferred hopes for a Federal Reserve policy rate cut, consequently postponing expectations of meaningful declines in mortgage rates this year,” Speianu explains. Jiayi Xu, a Realtor.com economist, echoes this sentiment, noting, “March's inflation data increased the likelihood we will continue to live in a prolonged period of high rates and face expensive borrowing costs, including high mortgage rates.”
Housing Market Trends and Potential Relief
Amidst the turmoil, a potential silver lining emerges: home prices remained flat for the week ending April 13 compared to last year, with listing prices hitting a median of $424,900 nationwide in March. Speianu notes, “Last week, the prices for homes on the market stayed steady, marking the 12th consecutive week without much change compared with last year.”
This consistency, she suggests, stems from fewer buyers competing for homes due to high interest rates and a shift in the types of homes available. Properties priced between $200,000 and $350,000 increased by a remarkable 30.5% in March compared to last year, with Southern listings comprising a staggering 57.4% of for-sale homes in that price range.
Another potential relief valve? An increasing number of sellers offering price reductions, which reached 15% in March – a figure not seen since March 2017. Buyers can also look forward to a flush of new listings, up 7.2% for the week ending April 13 compared to last year, although the growth rate is slowing.
Housing Market Outlook and Buyer Behavior
Speianu attributes this trend to “Ongoing elevated inflation…motivating more sellers, many of whom are potential buyers themselves, to wait for more stable or declining mortgage rates before making a move.” Nonetheless, overall active inventory increased by an impressive 29.1% for the week ending April 13 above last year's levels, marking the 23rd consecutive week of year-over-year growth.
While the current rate hike may persuade some buyers (and sellers) to temporarily exit the market, Speianu suggests a potential upside: “Some buyers might wait for rates to decrease further, temporarily reducing competition and potentially lowering prices.”
Buyer Resilience and Market Dynamics
Determined buyers, however, remain undeterred by affordability challenges. In March, homes spent a median of 50 days on the market, and while this figure remained unchanged for the week ending April 13 compared to the same period last year, it's worth noting that homes are still selling 12 days faster than the typical homebuying pace seen from 2017 to 2019.
Speianu's assessment? “Although there's been a noticeable increase in inventory compared with last year, homes are still selling quite fast. Well-priced homes, especially starter homes, are still attracting a pool of eager buyers.”
As the market's tides shift, investors must navigate the currents carefully. While warning signs abound, opportunities may emerge for those with a keen eye and a steady hand. The housing market's future remains uncertain, but one thing is clear: those who can decipher the signals amidst the noise stand to reap the rewards.