Mortgage rates have risen slightly above 7% again after last week’s rate hike by the Federal Reserve – and buyers and sellers are stagnating amid economic volatility.
“The housing market is the most interest rate sensitive segment of the economy, and the impact of rates on homebuyers continues to evolve,” says Sam Khater, chief economist at the finance giant. Freddie Mac housing.
“Home sales are down significantly and as we approach the end of the year, they are not expected to improve.”
The number of new listings on the market is down 20% from a year ago, according to Realtor.com.
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30 Year Fixed Rate Mortgages
The average interest rate on a 30-year fixed home loan is currently 7.08%, down from 6.95% last week, Freddie Mac reported Thursday.
Last year, at this date, the 30-year rate averaged 2.98%.
However, it’s possible that rates have mostly peaked and could fall in the future, says Lawrence Yun, chief economist at the National Association of Realtors (NAR), noting an unusually large gap between current mortgage rates and the federal funds rate.
“A return to a normal spread between the government borrowing rate and the home purchase borrowing rate will bring 30-year mortgage rates down to around 6 percent,” Yun says.
15-year fixed rate mortgages
A 15-year fixed-rate mortgage is now averaging 6.38%, down from 6.29% last week, according to Freddie Mac. By comparison, the 15-year rate averaged 2.27% last year at this time.
With rates so high, buyers and sellers remain in a “wait-and-see” mode, writes Danielle Hale, chief economist at Realtor.com.
The median listing price is up 11.7% over last year; however, the rate of growth continues to slow. The typical price for a home for sale on Realtor.com was $425,000 in October, down from the summer high of $450,000.
“The price of a typical home for sale continues to climb at a double-digit pace and could finally return to single-digit territory by the end of the year if the recent downturn continues,” Hale says.
In 2023, NAR’s Yun expects nationwide home sales to decline another 7%, while the median price will rise a modest 1%. The market won’t really rebound until 2024, he estimates, predicting a 10% jump in sales and a 5% rise in prices.
“In most parts of the country, house prices are holding up as available inventory is extremely low,” Yun said, tempering expectations of a Great Recession-like crash.
“Housing inventory is about a quarter of what it was in 2008… Distressed property sales are almost non-existent, at just 2%, and a far cry from the 30% seen during the housing crash. Short selling is almost impossible due to the significant price appreciation of the last couple of years.
5 Year Adjustable Rate Mortgage
The five-year variable rate mortgage – or five-year ARM – is also up from last week, when it averaged 6.29%. It is now at 6.38%.
Last year, at the same time, it averaged 2.27%.
ARMs start with lower interest charges than fixed rate loans, like the most popular 30-year fixed rate.
However, adjustable rates can increase once the initial fixed rate period is over because they are tied to a floating benchmark like the prime rate.
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Housing confidence plummets
Frightened by rising rates and economic uncertainty, buyers and sellers are pulling out of the housing market.
Fannie Mae’s Home Buying Sentiment Index fell 4.1 points in October to a record low of 56.7, marking its eighth straight monthly decline.
Only 16% of respondents said now was a good time to buy a home, while the percentage who think now is a good time to sell a home continued to decline.
“Consumers are increasingly pessimistic about the terms of buying and selling homes,” says Doug Duncan, senior vice president and chief economist at the mortgage company.
“As continued affordability constraints reduce buyer demand and homeowners become reluctant to sell at potentially discounted prices, we expect home sales to slow even further in the coming months, in line with our forecast.”
Goldman Sachs economists predict home prices will fall 5-10% next year.
Mortgage applications continue to decline
Rising borrowing costs, high inflation and fears of recession still prevent potential buyers from entering the market.
Mortgage purchase requests were down 1% from the previous week, according to the Mortgage Bankers Association (MBA). This was 41% less than the same period last year.
“Buy orders rose for the first time after six weeks of declines, but remained near 2015 lows as homebuyers stayed away from higher rates and continued economic uncertainty” , said Joel Kan, vice president and deputy chief economist of the MBA.
“Refinancings continued to fall, with the index hitting its lowest level since August 2000.”
Applications for refinancing existing home loans were down 4% from the previous week and 87% from the previous year.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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