Mortgage rates surge closer to 7%
Mortgage rates jumped higher this week, getting even closer to 7% and crushing homebuyer activity, which hit a 28-year low.
The average rate on the 30-year fixed mortgage increased to 6.65% from 6.50% the week prior, according to Freddie Mac. Rates have climbed over a half-point in February, reversing declines since mid-November.
The spike in rates is another blow to would-be buyers, who are also facing still-high home prices and a shortage of affordable homes for sale. Sellers also appear to be pulling their listings, rather than cutting prices further to spur interest.
“I think the biggest concern is buying into a market that would continue to go down,” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces, recently told Yahoo Finance. “In my 18-year career, I have never seen rate moves like we are seeing now.”
The volume of applications to purchase a home slid by 6% from one week earlier, the Mortgage Bankers Association’s survey of applications for the week ending Feb. 24 found. Overall, demand was 44% lower than the same week a year ago and has nosedived to a 28-year low.
The drop in demand registered this past month is a sign that affordability remains a top concern, according to Redfin Deputy Chief Economist Taylor Marr.
“The housing market took two steps forward in December and January, but has taken one step back in February,” Marr said in a statement. “Mortgage rates crept back this month, which is prompting more buyers and sellers to back off.”
Another reason for the pullback in demand is rising home prices. The national median list price increased to $415,000 in February, Realtor.com data showed, up from $406,000 in January. While that’s down 7.6% from June’s peak of $449,000 – it still represents a yearly growth rate of 7.8%.
That translates to out-of-pocket costs for buyers.
According to Realtor.com, the monthly cost of financing 80% of the typical home is roughly $630 higher than a year ago. That puts the monthly mortgage payment 45.1% higher than a year ago, exceeding rent growth, up 2.9% from a year ago, and inflation, up 6.4%.
As rates continue to climb, fewer home sellers are active this year.
The number of newly-listed homes for sale declined by 15.9% in February compared with the previous year, Realtor.com data found. That’s a larger rate of decline versus January’s 10.4% decrease, but a small improvement from November and December. Overall, new listings remained 27% below pre-pandemic 2017 to 2019 levels.
According to Redfin, existing homeowners don’t want to move because they don’t want to give up their ultra-low mortgage rates. As of February, approximately 85% of mortgage holders have a rate far below 6%.
Homeowners may also be hesitant to put their homes on the market due to soft homebuyer demand that’s forcing sellers to cut prices.
“We'll find out in the next 30 days if buyers are getting used to higher rates,” Reynolds said, “or if they will stay on the sideline waiting for rates to come back to earth.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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