“There’s such scarcity that the first thing that matters is finding a home you like,” said Jay Tuli, president of Leader Bank, which sells 90 percent of its home loans in Massachusetts.
Home sales are down year-over-year due to the lack of inventory, said Theresa Hatton, chief executive of Massachusetts Association of Realtors.
Many prospective buyers who were waiting for the Federal Reserve to begin cutting interest rates by now have reason to give up hope. Inflation isn’t coming down quickly enough and, at 3.5 percent, is still well above the Fed’s 2 percent target. So the central bank won’t trim short-term rates fast enough this year, contrary to what most economists had been expecting. Consequently, the 30-year fixed mortgage rate has risen to 7.1 percent, over 1 percentage point higher than this time last year and 0.6 percent more than January 2024, Freddie Mac reported last week.
“Until inflation cools a bit, we can expect mortgage rates to remain elevated,” said Michael Debronzo, a regional sales executive at PNC Bank, which has noted a slight uptick in loan applications.
The market is closely watching the Fed’s every move and the economy is a confounding puzzle even for experts. That will result in a volatile ride for the remainder of the year.
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With that in mind, here are three things for home buyers to consider, according to Berkshire Bank’s Ellen Steinfeld, head of consumer lending and payments:
Expect home listings to remain tight. That’s because those who financed their homes during the low-rate era are staying in their homes for longer. Even those who were looking to downsize are staying put. Financially, it doesn’t make sense to sell if you also have to buy at these rates. Usually, people try and sell their home before bidding on a new one, but right now it’s the other way around, said Steinfeld, who’s based in Long Island, N.Y.
This also means home prices are unlikely to drop. In certain cases people are paying more than the asking price, engaging in bidding wars. “I anticipate during the remainder of this year we’ll continue to see price appreciation,” Steinfeld noted.
Finally, even though interest rates will likely drop a smidge by late 2024, they won’t reverse anywhere as quickly as their speedy rise postpandemic. Meanwhile, buyers can do cheaper 3- or 5-year adjustable rate mortgages and refinance when rates drop.
“The cost of refinancing is reasonable enough,” Steinfeld said.
It’s the season of new beginnings and fresh starts: Spring cleaning, the outdoors, weddings, gardening and… real estate.
But in a housing market marked by high mortgage rates, low housing inventory and steep home prices, we still haven’t seen a typical spring homebuying season.
Though mortgage application volume is higher than it was last fall when home loan rates peaked above 8%, it’s still 10% lower than it was last year.
As temperatures go up in 2024, experts anticipate a somewhat healthier spring market, with inventory and home listings growing. So far, however, it hasn’t been such a great kickoff: In April, the average rate for a 30-year fixed mortgage pushed back above 7% in response to hot inflation data.
But context is critical, according to Logan Mohtashami, lead analyst at HousingWire. “Last year was the all-time low in new listings data,” he said.
Here’s a look at how the spring market is shaping up and what buyers can do to navigate it successfully.
Why is spring the season to buy and sell a home?
There are several reasons behind the rush of home listings and sales in the springtime and early summer months, according to Jeb Smith, realtor and CNET Money Expert Review Board member.
Warmer weather: Better temperatures and more sunlight make it easier for buyers to go out, tour and inspect properties compared with the winter months.
Timing with academic calendar: Families start the buying process so they can be settled into a new home before the start of their child’s school year in the fall.
Greater inventory: With sellers motivated to sell due to an influx of motivated buyers, increased supply hits the market.
Favorable to buyers and sellers: Buyers know there will be more choices available to them, and sellers take advantage of demand to list their homes at higher prices.
Why is today’s spring market different?
Beyond seasonal trends, the housing market is highly sensitive to broader economic shifts. Over the past two years, high inflation and surging mortgage rates have done significant damage to affordability for the average homebuyer.
From May 2019 to May 2023, average mortgage rates increased by more than 2%, causing a roughly 25% drop in home sales, according to data from Redfin. Homeowners who are currently “locked in” with low home loan rates have less incentive to sell, which keeps prospective buyers “locked out.”
Meanwhile, many prospective buyers are priced out of the market. According to Zillow, the monthly mortgage payment on a typical US home has almost doubled since January 2020. The average income needed to afford a home is now more than $106,500 — an 80% increase over four years — while the typical US household earns around $81,000 each year.
High mortgage rates also negatively impact existing housing inventory, said Daryl Fairweather, chief economist at Redfin. Because most sellers are also buyers, homeowners would rather hold onto their sub-5% mortgage rates than take out a new home loan at a 7% rate.
This “rate-lock” scenario — with sellers reluctant to give up their existing mortgage — is starting to loosen, according to Orphe Divounguy, senior economist at Zillow Home Loans. Homeowners have accrued substantial equity over the last period and are more motivated to cash in on it. “Any who were waiting for rates to fall have likely given up,” Divounguy said.
Who has the upper hand this season? Buyers or sellers?
Shrinking housing supply over the past several years has given sellers the upper hand. After all, you can’t buy what’s not for sale.
“In most areas of the country, we still have more buyer demand than inventory, which is typically indicative of a seller’s market,” Smith said. Because of that imbalance, many housing markets continue to be very competitive with multiple offers on homes, he said.
Yet in some areas where supply has returned to pre-pandemic levels, buyers have more of the upper hand. Divounguy said that in markets where new construction has taken off and existing inventory has recovered, price growth is slower, giving buyers better traction in negotiations.
Generally speaking, however, housing supply is still too low. “Even with home sales still trending at record-low levels, we have too many people chasing too few homes,” Mohtashami said.
In a buyer’s market, there’s a surplus of homes for sale and not enough buyers. Buyers have more options and leverage to negotiate lower prices or other concessions from sellers.
In a seller’s market, demand for homes exceeds supply. With more buyers ready to make offers on fewer homes, sellers are at an advantage and asking prices are generally higher.
If mortgage rates were to drop significantly, we’d likely see a substantial uptick in buyer and seller activity. However, 6% mortgage rates are still several months away, keeping a lid on the number of new listings this spring.
At the same time, homeseekers who need to relocate — or those getting tired of waiting on the sidelines — are starting to adjust to the new normal. Many families can’t put their lives on hold forever, and another era of sub-3% mortgage rates isn’t on the horizon.
“Buyers seem to now be accepting this higher-rate environment and are getting back into the market,” said Melissa Cohn, regional vice president at William Raveis Mortgage. Many of them know they have the option to refinance to a lower rate when mortgage rates eventually come down, she said.
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How does low inventory affect home prices?
In February, new listings increased 14.8% from the prior year, the largest annual gain since May 2021, according to Redfin. Currently, there are about 25% more available homes for sale compared with 2023, adding up to around 100,000 extra single-family homes on the market, Smith said. But again, context is critical.
“Even with this increase, the number of homes for sale is still much lower than what we saw before the pandemic hit, indicating we’re not yet back to a ‘normal’ market,” Smith said.
With buyer demand outweighing existing supply, home prices continue to go up. In February, the median sale price was $412,778, which is 6.6% higher than the previous year.
Should you sit it out this homebuying season?
Ultimately, the right time to buy a house depends on your finances, goals and timeline. The housing market has its patterns and fluctuations, but that doesn’t mean it has to dictate what works for you.
If you find a home that meets your needs and aligns with your budget, go for it. You can always refinance to a lower mortgage rate later.
But if you decide to delay buying a house, you can take steps toward having a more solid foundation as a future homeowner. By waiting, you’re giving yourself time to save for a bigger down payment, improve your credit and be in an overall better position to purchase a house, even if it’s not for several spring seasons down the road.
Homebuying demand also showed signs of softening. Home tours were up 15% compared to the start of the year, a slower increase than the 21% seen at the same time in 2023. Mortgage purchase applications remained flat for the week. Additionally, pending home sales dropped 2.8% year-over-year and unexpectedly declined during the last week of … [Read more…]
Waiting out rate cuts “not worth it” for some sellers While the market remains competitive, with homes typically going under contract within 17 days of listing, the slight increase in inventory comes as good news for prospective homebuyers that have been navigating a market characterized by limited supply. As borrowing costs remain high, many homeowners … [Read more…]
LOS ANGELES — More homeowners eager to sell their home are lowering their initial asking price in a bid to entice prospective buyers as the spring homebuying season gets going.
Some 14.6% of U.S. homes listed for sale last month had their price lowered, according to Realtor.com. That’s up from 13.2% a year earlier, the first annual increase since May. In January, the percentage of homes on the market with price reductions was 14.7%.
The share of home listings that have had their price lowered is running slightly higher than the monthly average on data going back to January 2017.
That trend bodes well for prospective homebuyers navigating a housing market that remains unaffordable for many Americans. A chronically low supply of homes for sale has kept pushing home prices higher overall even as U.S. home sales slumped the past two years.
“Sellers are cutting prices, but it just means we’re seeing smaller price gains than we would otherwise have seen,” said Danielle Hale, chief economist at Realtor.com.
The pickup in the share of home listings with price cuts is a sign the housing market is shifting back toward a more balanced dynamic between buyers and sellers. Rock-bottom mortgage rates in the first two years of the pandemic armed homebuyers with more purchasing power, which fueled bidding wars, driving the median sale price for previously occupied U.S. homes 42% higher from 2019 through 2022.
“Essentially, the price reductions suggest far more normalcy in the housing market than we’ve seen over the last couple of years,” Hale said.
The share of properties that had their listing price lowered peaked in October 2018 at 21.7%. It got nearly as high as that — 21.5% — in October 2022.
Last year, the percentage of home listings that had their asking price lowered jumped to 18.9% in October, as the average rate on a 30-year mortgage surged to a 23-year high of 7.79%, according to Freddie Mac.
Mortgage rates eased in December amid expectations that inflation has cooled enough for the Federal Reserve begin cutting its key short term rate as soon as this spring. Those expectations were dampened following stronger-than-expected reports on inflation and the economy this year, which led to a rise in mortgage rates through most of February.
That’s put pressure on sellers to scale back their asking price to “meet buyers where they are,” Hale said.
That pressure could ease if, as many economists expect, mortgage rates decline this year.
He pointed to the marked improvement in sentiments toward selling, which could signal an influx of existing home listings in the near future. He also noted a lingering optimism among consumers that mortgage rates might see a decline over the next 12 months, which could potentially energize the housing market even more. “If their expectations … [Read more…]
While buyers now have slightly more options, housing costs remain historically high. The typical mortgage payment is $2,671, just $47 below last October’s record level. These high costs have contributed to an 8% decline in pending sales (the biggest drop in five months) and a fourth consecutive week of declining mortgage applications. Despite these challenges, … [Read more…]
Rates for 30-year mortgages dropped again, but homes remain unaffordable in most areas. (iStock)
Mortgage rates dropped to 6.63% this week, according to Freddie Mac’s Primary Mortgage Market Survey. Rates for 30-years fixed-rate mortgages were 6.69% last week, dropping by 0.06 percentage points.
Rates for 15-year mortgages also dropped slightly from 5.96% last week to 5.94% this week. Both 15-year mortgages and 30-year mortgage rates are still higher than they were last year.
A year ago, 30-year mortgages sat at 6.09%, on average, while 15-year mortgages averaged 5.14%, Freddie Mac reported.
“Mortgage rates have been stable for nearly two months, but with continued deceleration in inflation we expect rates to decline further,” Freddie Mac Chief Economist Sam Khater explained.
“The economy continues to outperform due to solid job and income growth, while household formation is increasing at rates above pre-pandemic levels. These favorable factors should provide strong fundamental support to the market in the months ahead.”
As mortgage rates drop, you may decide it’s the right time to finally buy a home. To find the right mortgage for your needs, Credible can show you multiple mortgage lenders all in one place and provide you with personalized rates within minutes.
HOMEOWNERS INSURANCE RATES ON THE RISE, MAINLY DUE TO INCREASE IN NATURAL DISASTERS
Home prices are lowering in some major cities
After remaining for high most of the year, home prices are dropping slightly in some metro areas.
Data from a recent S&P report showed prices in 12 out of 20 metro areas decreasing. This decrease in prices has led some households to move across state lines in search of more affordable areas.
Charlotte, Providence and Indianapolis saw the largest increase in buyers as they fled high-cost cities, stated a Zillow report.
Households that made these moves found homes were $7,500 less, on average, than where they left.
Cities that saw the highest outflow in households included Chicago, San Diego and Cincinnati. These metro areas often have higher housing costs and less robust economies, Zillow found.
If you think you’re ready to shop around for a home loan, consider using Credible to help you easily compare interest rates from multiple lenders, all without affecting your credit score.
HOMEOWNERS MOVING ACROSS STATE LINES, SEEKING AFFORDABILITY, FIND IT IN CERTAIN CITIES
It’ll be years before homes are affordable for the average buyer
The housing market is trudging toward recovery, largely thanks to mortgage interest rates dropping in recent months.
“The surge in pending home sales and new home sales, both determined by contract signings in the early stages of the buying process, indicates increased participation from buyers in the market,” explained Realtor.com Economist Jiayi Xu in response to Freddie Mac’s recent mortgage rates update. “Simultaneously, the recent rise in listing activity suggests that sellers are closely monitoring mortgage rates and adjusting their selling strategies accordingly.”
Potential homebuyers won’t see a full recovery anytime soon, however. JP Morgan experts predict that the real estate market will become affordable again about three and a half years from now. This is largely dependent on continued interest rate decreases.
“Despite the promising increase in listing activity, inventory is likely to remain low as sellers may not respond as swiftly as anticipated. In other words, a more substantial improvement in mortgage rates is necessary to attract more sellers to the market,” Xu said.
Until rates drop more substantially, mortgage payments are likely to stay high. In November 2023, the average monthly mortgage payment was $2,198, up from $1,993 a year earlier, a National Association of Realtors report found.
If buying a home is your near future, make sure you’re getting the best mortgage lender and rates with the help of Credible. Credible helps you compare rates and lenders and get a mortgage pre-approval letter in minutes.
JUST OVER 15% OF HOME LISTINGS WERE CONSIDERED AFFORDABLE IN 2023: REDFIN
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Starts for construction of housing projects with five units or more posted a 4.9% increase to a rate of 382,000 units last month, while residential investment also saw a welcome increase for the first time in 10 quarters. With interest rates having surged over the past 20 months, homebuying demand has remained somewhat muted throughout … [Read more…]
Amged Baker, a 40-year-old software developer, wanted to move to a bigger home as the Florida native transitioned into a new role at work that allowed him to be permanently remote. He also wanted more space for his two kids.
But Baker, who works for a real-estate platform, knew that it wasn’t that simple to trade up. Mortgage rates had doubled and home prices continued to rise. In his hometown of Palm Beach County, Fla., home prices soared by nearly 60% over the last five years.
He sold his previous home for $600,000, which had a 30-year mortgage rate of 2.8%. However, he was prepared to give up that rate if he could avoid paying a rate of 7%.
Baker was intrigued byassumable loans. Having refinanced his current home during the pandemic, he was keenly aware of the value of his ultra-low mortgage. He knew his monthly payments would be a lot more affordable with an assumable mortgage — and so his search began.
He’s not alone. It appears to be the housing market’s latest obsession — homeowners, buyers, and real-estate agents are all talking about assumable mortgages.
Across real-estate brokerage sites, listings boast that the home comes with an “assumable mortgage,” described in glowing terms as a “rare find,” “game-changer,” or as one buyer said on social media, “white whale.”
What are assumable mortgages?
With assumable mortgages, the loan — and, importantly, its interest rate — is passed from the seller to the buyer when a house changes hands.
With the U.S. housing market frozen by high rates and low inventory, it’s clear why people have turned their attention to assumable loans. They’re particularly appealing now because they offer homeowners a way to potentially capitalize on their pandemic-era ultra-low mortgage rate by passing it on.
Here’s the catch: Only certain types of loans can be assumable mortgages. The seller must have a government-backed home loan, which is insured by the Federal Housing Administration, Veterans Affairs, or certain loans by the U.S. Department of Agriculture.
“‘Folks don’t want to give up those assumable mortgages because they’re just as attractive to them as they are to you.’”
— Andy Walden, vice president of enterprise research strategy at ICE
These government agencies allow homeowners to transfer ownership of the mortgage to a new home buyer under certain conditions such as the new buyer having good credit, an acceptable debt-to-income ratio, and more.
For the typical home buyer today who is facing a 30-year mortgage with a rate over 7%, assuming an existing mortgage with an interest rate as low as 1.75% is an enticing proposition. It offers an alternative to buying points — fees a borrower pays the lender to cut the mortgage rate on their home loan — or taking out an adjustable-rate mortgage, which comes with its own risks.
For the seller, an assumable mortgage presents another feature to play up when listing their home. There is also, perhaps, some comfort in knowing that their ultra-low interest rate will be inherited by the buyer.
Assumable mortgages were popular in the 1980s
“For the last 40 years, rates have been falling, so nobody cared about assumability,” said Tod Tozer, former president and CEO of Ginnie Mae. “So we’re basically back to the future — we’re back to 40 years ago when 30-year mortgages were close to 13%, 14% back in 1981. And they’ve been falling ever since.”
Ginnie Mae securitizes all FHA, VA, and USDA mortgages for the secondary market. Tozer has also written about assumable mortgages being a “solution” to today’s frozen housing market, as the seller will be able to “receive top dollar for the sale of their home,” and move to another place.
Assumable mortgages were popular in the 1980s when mortgage rates were in the double digits. Back then, many conventional loans were assumable. “It was the standard of the industry,” Tozer said.
But assumable mortgages aren’t as common as a conventional loan, making them hard to come by.
Based on the market today, only 12 million mortgages are potentiallyassumable, which is less than a quarter of all mortgages in the U.S., according to loan-level data from ICE. Of these mortgages, which are primarily FHA, VA, and USDA loans, about 7.2 million or 14% have a mortgage rate of below 4%.
Assumable mortgages can be difficult to find, and it can also be difficult to get homeowners to part with their loan if the alternative is to buy a house with a much higher interest rate.
“Folks don’t want to give up those assumable mortgages because they’re just as attractive to them as they are to you,” said Andy Walden, vice president of enterprise research strategy at ICE, or Intercontinental Exchange, a data company.
Additionally, even after a buyer takes over the mortgage, they will still need to cover the difference between the outstanding balance and the sale price, Walden told MarketWatch.
How assumable mortgages work
So how do they work? Imagine an aspiring homeowner views a home valued at $375,000, and the home comes with an assumable mortgage of $225,000. The buyer in this situation will need to put down $150,000 in cash, or find other financing after they assume the mortgage.
If the buyer requires secondary financing, it will likely come at a higher interest rate, which will offset some of the savings from the assumable mortgage. Nonetheless, for homeowners who are keen on selling, if they have an assumable mortgage, their house will become more attractive to buyers.
“Veterans across the country are sitting on these ultra-low rates,” Chris Birk, vice president of mortgage insight at Veterans United Home Loans, told MarketWatch. “So they’ve got this incredible marketing opportunity.”
“‘Veterans across the country are sitting on these ultra-low rates. So they’ve got this incredible marketing opportunity.’”
— Chris Birk, Veterans United Home Loans
And yet of the 69,000 VA purchase loans that his company processed in 2022, only about two dozen were assumptions.
There’s a lack of awareness about assumable loans, Jason Mitchell, chief executive of Jason Mitchell Group, a Scottsdale, Ariz.-based real-estate brokerage, told MarketWatch.
The first question real-estate agents should ask homeowners who are listing their homes is whether their mortgage is assumable. “If you can mark it as an assumable mortgage at 3.5%, you’re gonna get a better price on your house,” he added.
What happens if the new buyer defaults on the assumable mortgage?
The person who assumes the mortgage also becomes responsible for paying the loan on time. If the new buyer stops making their mortgage payments and goes into default, that does not mean the original owner will be required to pay up.
With FHA loans, “once the assumption is complete, it is a full release of liability for the previous borrower, which means the new borrower (the borrower that has assumed the mortgage) has full responsibility for all aspects of the mortgage,” a HUD spokesperson told MarketWatch.
Similarly, with VA loans, when another buyer assumes the mortgage, there is a release of liability, Birk added. The veteran who owned the home previously isn’t financially responsible if the new owner defaults.
One man’s search for an assumable mortgage
During his search, Baker, the software developer, contacted Chris Tapia, a 41-year-old real-estate broker with Compass Florida. Tapia had met Baker three years ago when the homeowner bought his first home in Palm Beach, and the pair had become good friends.
Tapia had recently introduced the idea of assumable mortgages to Baker. The agent believed that it was one key way for home buyers to take back the purchasing power they lost as homeownership became more expensive.
“Everything is so phenomenally expensive that no one can really afford anything right now,” Tapia told marketWatch.
In his quest for assumable loans, Baker specifically looked for homes that were financed with a mortgage from the Federal Housing Administration, Veterans Affairs, or the U.S. Department of Agriculture.
He then searched home listings from various online brokerages to identify those that were financed with an FHA or a VA mortgage. He also looked at services such as FHA Pros, a site that provides real-time data for FHA and VA condominium approvals.
But homeowners can also look for listings with assumable loans via Google with the following search term: site:compass.com “assumable.”
MarketWatch found several new and old listings advertising assumable mortgages in the home’s description.
Finding an assumable rate of 3.05%
Baker and Tapia attended 20 open houses in Palm Beach County.
They made four offers and ultimately closed on a four-bedroom single-family home in Palm Beach County for $620,000. Baker took over the seller’s 30-year fixed-rate mortgage, under the assumption rules.It has a 3.05% rate.
He currently holds a Federal Housing Administration loan with an outstanding balance of $324,000. As a result, he put down $269,000 in cash.
The seller had only paid off about 3 years on their 30-year loan,so Baker took it over with a monthly payment of about $1,500. He estimated that buying the home with a conventional mortgage at the prevailing rate would cost closer to $2,300 a month.
Baker closed on the home in June 2023, and because he assumed the seller’s loan he did not have to pay thousands of dollars in closing costs.
“You will be hearing about assumable loans more often,” Tapia, the broker, said.
Baker agreed. “To be honest with you, it was always a good deal — it was always better than going the conventional route,” he said.