Lower mortgage rates fail to coax sellers out of hibernation, forcing buyers to ‘narrow their list of must-haves’ in a home
While a heat wave broke records across much of the U.S. this week, the housing market is still a lot colder than it was last April.
Some experts do hold hope for increased activity in the coming months, especially as mortgage rates dip for the fifth week in a row.
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“Incoming data suggest inflation remains well above the desired level but showing signs of deceleration,” says Sam Khater, Freddie Mac’s chief economist.
And according to recent data, the jobs market is staying strong — with 236,000 jobs added and the unemployment rate sliding down to 3.5% in March.
“These trends, coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer,” says Khater.
30-year fixed-rate mortgages
The average rate on a 30-year home loan declined slightly from 6.28% to 6.27% this week. A year ago at this time, the average was 5%.
“With inflation moving closer to the Fed’s 2% target, mortgage rates are expected to decrease further in the coming months, likely below 6% by year’s end,” predicts Lawrence Yun, chief economist at the National Association of Realtors.
Lower rates will bring down monthly payments, opening doors to more potential buyers.
“If rates drop to 6%, 3.1 million more households will once again be able to afford to buy the median-priced home compared to the beginning of the year.”
15-year fixed-rate mortgages
The average rate on a 15-year home loan dropped from 5.64% to 5.54% this week. This time a year ago, the 15-year fixed rate averaged 2.77%.
“With both homebuyers and potential sellers feeling rather dour about the real estate market … the number of homes sold will continue to be lower than one year ago for the next few months,” writes Danielle Hale, chief economist at Realtor.com.
This means fewer options for buyers to compare as well, although Hale notes there has been a slight improvement in sentiment as mortgage rates ease.
“If the current dip in mortgage rates can be sustained, that will keep buyers on the hunt and perhaps draw more homeowners into the market as sellers.”
A ceiling on the speed of recovery
While prices are still increasing and homes are spending less time on the market — which is typical for the spring season — these shifts aren’t occurring nearly as quickly as last year.
Hale says more homeowners are opting to “sit on the sidelines” rather than list their homes, while buyers stay hesitant as well, making it a “nobody’s market.” In fact, new listings are down a whopping 32% since last year.
The median listing price hit over $424,000 in March, but grew only 3.2% year-over-year, marking the smallest jump since May 2020, reports Realtor.com.
“While this week’s figures were likely extra low due to spring holidays falling earlier in 2023, the fact remains that lackluster participation from sellers may have put a ceiling on the speed of the inventory recovery,” says Hale.
“This means that buyers will continue to have to narrow their list of must-haves in order to find success in today’s housing market.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
