Homebuyers get some relief on mortgage rates — probably not enough
Mortgage rates edged down this week, but remain elevated enough to add to the other troubles homebuyers face in today’s housing market.
The rate on the 30-year fixed mortgage declined to 6.71% from 6.79% the week prior, according to Freddie Mac. Still, rates have stayed stubbornly above 6.5% for the better part of the spring season, with few signs of softening below that entering the summer.
Rates — coupled with still-high home prices — have compounded affordability challenges as buyers search a market lacking in choices. Rate-trapped homeowners, for their part, are adding to the inventory woes by refusing to list.
“People in the market are rate-shocked,” Monte Miner, real estate agent at Ironwood Fine Properties in Phoenix, told Yahoo Finance. “But it’s a factor people are coming to terms with. Inventory is tight and the cost of homeownership is up. From where I stand, it’s not going down anytime soon.”
A ‘tough’ market
Still-high rates are keeping many buyers to the sidelines, while the dearth of supply is making it harder for those still on the hunt to make a deal. That was obvious in the latest mortgage applications data.
The volume of purchase applications declined for the fourth straight week, the Mortgage Bankers Association’s survey for the week ending June 2 found. Overall, purchase activity plunged 13% week over week on an unadjusted basis and was 27% lower than the same week a year ago.
“Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market,” Joel Kan, deputy chief economist for the MBA, said in a statement.
The MBA detected a smaller decline in applications for loans that typically attract first-time buyers. Those buyers are making up a larger share of the buyer pool as move-up buyers remain reluctant to sell their current home and lose their existing low mortgage rate.
The problem for those buyers, though, is finding homes within their price budgets.
According to Redfin, at last week’s 6.79% rate, the average monthly payment on a median-asking-price home hit a record high of $2,651. That’s up 14%, or $320 per month, from a year ago. New listings also dropped across all metros analyzed by Redfin.
Those reasons are behind why 80% of Americans don't think it's a good time to buy a home, according to the latest measure of housing sentiment this week from Fannie Mae.
“I do have a couple of first-time buyers in the pipeline, but not significant,” Miner said. “It’s been tough for them.”
Inventory remains tight
While sellers seem to have the edge, with 65% of Americans surveyed by Fannie Mae saying “it’s a good time to sell,” that hasn’t moved the supply side needle in any meaningful way.
Inventory grew by 0.7% for the week ending June 5, according to real estate data firm Altos Research, which expects at least 3% growth each of the next three weeks. That “constricted pace” lags last year’s rate of 5-7% weekly growth, Altos President Mike Simonsen wrote in a blog post.
“This tells us that by mid-July we’ll have negative year over year inventory growth,” he predicted.
For the sellers still out there, that means fewer concessions at the negotiating table. Just over 30% of the homes on the market had a price cut, which is considered a normal level per Altos.
“This time of year, price reductions are usually accelerating much more quickly. But this year, because inventory is so restricted and demand has remained sufficient all year, few sellers have had to cut their prices,” Simonsen wrote.
“Basically by the third quarter, we’ll have fewer price cuts than any year except the two peak pandemic years.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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