Author: Kay Bright
During the pandemic’s peak, housing businesses saw a surge in sales, with real estate agents collecting 10 to 15% more than their official price listing.
However, a limited number of available properties for sale and a steep spike in mortgage rates are weighing on home sales across the country.
This article delves into the impact of the rising mortgage rates on all aspects of the housing market.
How High are Mortgage Rates this year?
According to Freddie Mac, a government-owned mortgage lender, the 30-year fixed-rate mortgage averaged 5.81 percent this month – mortgage rates were this high in the winter of 2008. This time last year, mortgage rates were 3.08 percent.
Also, applications for mortgage loans declined by about 17 percent in April this year compared to the same week in April 2021.
The Effect of Increased Mortgage Rates on the property market
Due to the increase in mortgage rates, a house buyer’s average monthly mortgage payment also increased by 38 percent as of April this year, reducing pending home sales as buyers and sellers take a breather from the volatile market.
According to experts, the frequency of open houses and internet searches for new homes has decreased.
Homebuilders who have backlogs of interested buyers argue that rising mortgage rates have pushed them to go farther into their waiting lists, in order to sell properties.
Furthermore, a survey conducted by Zelman & Associates found that, while homebuilders continued to receive demands, there was an increase in demand cancellations. However, it is still below historical low levels.
Housing Market Expectations for the rest of the year
Mortgage rates do not appear to be falling anytime soon, and economists expect they will continue to rise throughout the year. Even with the increasing rates, there is still competition for homes due to the limited amount of available properties.
According to Daryl Fairweather, chief economist at Redfin, there are early signs that an increasing number of home purchasers are being priced out, particularly in expensive coastal cities.
Economists also believe that, due to the lack of property supply, higher mortgage rates would not depress the housing market because there will still be a demand for houses, and it may be the perfect moment to be a seller.
Buyers who can still afford the high mortgage rates have to compete for the limited number of available homes. Even if some buyers and sellers leave the market, competition is not projected to decrease considerably in the short run.
Rising mortgage rates, dwindling supply, and the belief that the only way to win a bidding war is by waiving contingencies and safety checks will wear purchasers down. Because even if they stretch their budget, it may not be enough to win a bid.
The property industry has finally realized that there is a limit to how much down payment home buyers can afford. Even though household income has increased over time, inflation has impacted the prices of various household goods such as groceries and other products. Sellers will eventually see a decline in offers, which will cause mortgage prices to fall.