Housing: Another dip in mortgage rates can't offset homebuyers' inventory woes
Borrowing for a home purchase got a little more affordable this week, but homebuyers are still stymied by the record-low number of properties to buy.
The 30-year fixed mortgage rate fell to 6.67% this week, down from 6.69% the previous week and the third straight week of declines, according to Freddie Mac. Rates have softened after government data last week showed inflation had cooled, cementing the Federal Reserve’s decision to pause its interest-rate hiking campaign.
The dip in rates, however, wasn’t enough to bolster homebuyer demand. Buyers in the market still face a shrinking pool of homes for sale — worsened by homeowners who are deciding to stay put as rates remain elevated.
“It’s difficult for sales to pick up if there’s nothing to buy,” Keith Gumbinger, vice president of HSH.com, told Yahoo Finance. “Right now we’ve got a very measured number of people coming into the marketplace who are looking for bargains that they can afford because prices are high.”
Scarce inventory limits buyers
The drop in rates provided a window of opportunity some homebuyers were waiting for, but the limited supply of homes narrowed their options.
The volume of mortgage applications for purchases increased by 2% on a seasonally adjusted basis for the week ending June 16, according to the Mortgage Bankers Association (MBA), losing some momentum from the week prior. But overall, purchase activity was down 32% from the same week a year earlier.
The modest uptick was driven by a 3% increase in loans backed by the Federal Housing Administration (FHA), which are typically used by first-time homebuyers.
“First-time homebuyers account for a large share of FHA purchase loans, and this increase is a sign that while buyer interest is there, activity continues to be constrained by low levels of affordable inventory,” MBA Deputy Chief Economist Joel Kan said in a statement.
The limited share of homes on the market has also kept prices elevated this spring, and still-high rates are no help for homebuyers looking for a bargain.
According to Redfin, at last week’s 6.69% rate, the average monthly payment on a median-asking-price home was $2,628. That’s down slightly from the record high three weeks earlier, but up 8% or $190 from a year ago.
“A [change in rates] can easily add $1,000 extra a month to your monthly payment,” Daryl Fairweather, Redfin's chief economist, told Yahoo Finance.
Sellers continue to back off
Even though 65% of homeowners said it’s a good time to sell, the highest level since July, very few chose to list this spring. That’s because nearly all homeowners have a mortgage rate below 6%.
“Both buyers and sellers have backed off from the market,” Fairweather said. “High mortgage rates have made homebuying more expensive, and homeowners who were able to lock in a 3% rate a little over a year ago are not selling in this market.”
That’s translated to fewer listings on the market. New listings of homes for sale fell 24% in the four-week period ending June 18, according to Redfin. The number of previously owned homes on the market in May was the lowest count on record for the month, according to data released Thursday from the National Association of Realtors.
“Available inventory strongly impacts home sales, too,” NAR Chief Economist Lawrence Yun said in a statement. “Existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019.”
Builders pick up pace
Homebuilders, though, are picking up the demand that isn’t being satiated in the resale market.
Builders from D.H. Horton (DHI) and PulteGroup (PHM) to Toll Brothers (TOL) and Lennar Corp. (LEN) all noted in their earnings calls that more first-time buyers are shopping for new homes because there’s nothing to purchase on the previously-owned side.
New home sales have increased. Builder confidence is up. And that’s supported an uptick in new construction that could expand buyers' options later this year.
Construction of both single and multi-family homes increased by 21.7% in May, to a seasonally adjusted annual rate of 1.631 million units, according to government data released Tuesday. That’s close to its highest level in almost two decades, Redfin economists noted. The figures also exceeded Bloomberg estimates of 1.400 million units.
“Newly constructed homes are selling at a pace reminiscent of pre-pandemic times,” Yun said, “because of abundant inventory in that sector.”
Gabriella Cruz-Martinez is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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