June 1st, 2023 7:00am PDT
(PenniesToSave.com) – Mortgage rates experienced a significant increase this week, approaching the 7% threshold. This unfortunate development has worsened the already difficult housing conditions for prospective buyers.
According to Freddie Mac, the average rate for a 30-year fixed mortgage rose from 6.57% to 6.79% in the past week. This increase is attributed to widespread expectations of another interest rate hike by the Federal Reserve. Mortgage rates have stayed between 6% and 7% for the past eight months, with little indication of significant easing in the near future.
The combination of increased mortgage rates and consistently high home prices has greatly impacted the affordability of homes for potential buyers. As a result, many homeowners have chosen to delay listing their properties, further worsening the already limited supply in a housing market that is desperate for more options.
The latest data clearly shows the effects of these challenging circumstances. According to the Mortgage Bankers Association’s survey, there was a 3% decrease in applications for home purchases compared to the previous week. Overall, buyer demand has experienced a significant 45% decline compared to the same period last year.
According to Sam Khater, Chief Economist at Freddie Mac, the demand for home purchases has been steady with interest rates ranging from low to mid-6%. However, as rates approach the 7% mark, this demand is expected to weaken. Many market observers believe that further interest rate hikes from the Federal Reserve are on the horizon due to a strong economy. Khater attributes this trend to these expectations.
A study conducted by real estate analytics company Altos Research found that the number of pending sales expected to be completed in June and July stayed at a stagnant 398,000. This is surprising considering there was a 2% increase in inventory for the week ending May 29th.
According to Altos Research founder, Mike Simonsen, this data could suggest that some potential buyers were hesitant to make purchases due to a notable increase in mortgage rates.
The rise in mortgage rates is impacting not only prospective home buyers but also causing hesitation among homeowners who were planning to sell their properties this spring. For those who have already listed their homes for sale, they may find themselves in a more advantageous position as the market shifts towards favoring sellers.
However, potential homebuyers are facing increasing challenges in finding a house to purchase. Despite the typically busy spring season for listing and selling homes, the number of signed contracts remained unchanged in April compared to March, according to a report by the National Association of Realtors last week.
In addition, data from Altos Research shows that the number of homes entering into contracts this week has seen a nearly 5% decline compared to the previous week. This also reflects a 14% decrease when compared to the same period last year.
“We acknowledge the ongoing issue of high demand for housing surpassing the limited supply throughout the year. However, with the recent increase in mortgage rates, a new factor has come into play. There are indications that some potential buyers have decided to delay their actions due to these higher rates,” Simonsen explained. “If mortgage rates continue at this level, there is a concern that the signs of market strength we’ve seen may quickly diminish.”