Home buyers and sellers have never been so ‘pessimistic’ as mortgage rates rise above 7% – here’s what experts say about the possibility of collapse or recovery
Mortgage rates inched more than 7% again after the Federal Reserve raised rates last week – and both buyers and sellers are stalling amid economic turmoil.
“The housing market is the most interest-sensitive segment of the economy, and the rate at which it affects homebuyers,” said Sam Khater, chief economist at housing finance giant Freddie Mac. continue to develop.
“Home sales have dropped 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 30-year home loan rate is now 7.08%, up from 6.95% last week. Freddie Mac reported on Thursday.
Last year at this point, the average 30-year interest rate was 2.98%.
However, it is possible that the rate is almost exhausted and may decrease in the future, speak National Association of Realtors (NAR) chief economist Lawrence Yun – noted that there is an unusually large spread between today’s mortgage rates and the federal funds rate.
“The normal difference between the government loan rate and the home loan rate would bring the 30-year mortgage rate down to around 6%,” explains Yun.
15 year fixed rate mortgage
One 15 year fixed rate mortgage Freddie Mac is currently averaging 6.38%, up from 6.29% last week. Meanwhile, 15-year rates averaged 2.27% last year at this point.
With rates so high, buyers and sellers remain in “wait and see” mode. write Danielle Hale, chief economist at Realtor.com.
Average listing price increased by 11.7% y/y; however, the growth rate is continuing to slow down. The typical price of a home for sale on Realtor.com was $425,000 in October, compared with a summer high of $450,000.
“The typical home for sale price continues to grow at a double-digit rate and could eventually return to single-digit territory later this year if the recent slowdown is sustained,” Hale said.
Moving into 2023, NAR’s Yun expects nationwide home sales to drop another 7%, while median prices will rise a modest 1%. He believes the market won’t really recover until 2024, predicting a 10% increase in sales and a 5% increase in prices.
“For most parts of the country, house prices are holding steady because inventory availability is extremely low,” said Yun.
“Housing inventories are about a quarter of where they were in 2008… Troubled property sales are almost non-existent, at just 2%, and nowhere near the 30% seen during the housing era. land collapsed. Short selling is almost impossible as prices have increased significantly in the last two years.”
5-year adjustable-rate mortgage
The 5-year adjustable-rate mortgage – or 5-year ARM – is also up from last week, when it averaged 6.29%. It is currently at 6.38%.
Last year, at this point, the average rate was 2.27%.
ARMs start at a lower interest cost than fixed-rate loans, like the more common 30-year fixed.
However, adjustable rates may increase as the initial fixed rate period ends, as they are tied to a variable benchmark such as base rate.
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Housing confidence is plummeting
Panicked by rising rates and economic uncertainty, both buyers and sellers retreated from the housing market.
Fannie Mae’s Homebuying Sentiment Index down 4.1 points in October to a record low of 56.7, marking its eighth consecutive monthly decline.
Only 16% of respondents thought it was a good time to buy a home, while the percentage who believed it was a good time to sell continued to decline.
“Consumers are increasingly pessimistic about both home buying and selling conditions,” said Doug Duncan, senior vice president and chief economist at mortgage lenders.
“As affordability constraints continue to dampen homebuyer demand and homeowners are reluctant to sell at potentially falling prices, we expect home sales to slow further in the coming months, consistent with our forecast.”
Economists at Goldman Sachs predict house prices will 5-10% off next year.
Mortgage applications continue to fall
Rising borrowing costs, high inflation and recession fears are still keeping homebuyers wary of entering the market.
Mortgage applications are down 1% from last week, according to the Mortgage Bankers Association (MBA). This is 41% lower than the same time last year.
“Applications rose for the first time in six weeks of decline but remained near their 2015 lows, as homebuyers remained sidelined by higher rates and ongoing economic uncertainty,” he said. speak Joel Kan, vice president and chief economist at MBA.
“Refinances continue to fall, with the index hitting its lowest level since August 2000.”
Applications to refinance existing home loans fell 4% from last week and plummeted 87% from a year ago.
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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.
