Danielle Hale

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After dropping slightly month over month in May, pending home sales ticked back up in June, rising 0.3%, according to data released Thursday by the National Association of Realtors (NAR). It contrasts with new home sales, which moderated in the same period (-2.5%).

Year over year, pending home sales were down 15.6%, a smaller decrease than the 22.2% annual drop recorded in May. Taking a step back, pending home sales remain at a relatively low level, and despite this month’s setback, new home sales have climbed convincingly (+22.5%) above last summer’s lows. 

The NAR’s Pending Home Sales Index climbed to a reading of 76.8 in June. An index of 100 is equal to the level of contract activity in 2001.

“The recovery has not taken place, but the housing recession is over,” said NAR Chief Economist Lawrence Yun. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers.”

The trade association forecasts the 30-year fixed mortgage rate to close at 6.4% this year and then decline to 6.0% in 2024. Meanwhile, the unemployment rate will rise slightly to 3.7% in 2023 before increasing to 4.1% in 2024, according to NAR’s forecast.

“With consumer price inflation calming close to the Federal Reserve’s desired conditions, mortgage rates look to have topped out,” Yun added. “Given the ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next.”

NAR expects existing-home sales to decrease 12.9% in 2023, settling at 4.38 million, before ticking up 15.5%, to 5.06 million in 2024. In the meantime, national median existing-home prices will remain steady, according to NAR’s forecasts. Compared to last year, existing home-prices are poised to  recede 0.4%, to $384,900, before rebounding by 2.6% next year, to $395,000. 

“It is critical to expand supply as much as possible to widen access to homebuying for more Americans,” Yun said. “Home prices will be influenced by how much inventory is brought to market. Increased homebuilding will tame price growth, while limited construction will lead to home price appreciation outpacing income growth.”

On the flip side, newly constructed home sales are forecast to increase 12.3% in 2023, to 720,000. The trade group expects they will increase by another 13.9% in 2024, to 820,000. Hence, the national median new home price will decrease by 1.9% this year, to $449,100, and then improve by 4.2% next year, to $468,000.

Regionally, on a month-over-month basis, the Midwest (77.6) and the Northeast (67.1)  pending home sales climbed while the South (93.3) and West (57.7) fell. All four U.S. regions saw year-over-year declines in transactions, with the Midwest (77.6) posting the largest annual drop at 17.1%.

According to NAR, prices in the West – the country’s most expensive region – are expected to falter while the more affordable Midwest region will likely see a small, positive increase. (Several of the country’s top emerging housing markets are in Indiana.)

Meanwhile, housing starts are forecast drop 5.3% from 2022 to 2023, to 1.47 million, before increasing to 1.55 million, or 5.4%, in 2024.

“Today’s data signal that although mortgage rates remained high in June, their relative steadiness in the month might have been a difference-maker for home shoppers trying to juggle high costs and stretched budgets. Nevertheless, inventory shortages and living alternatives are likely to keep a lid on existing home sales this year. We’re expecting the smallest annual sales tally in over a decade,” said Realtor.com Chief Economist Danielle Hale.

Source: housingwire.com

Apache is functioning normally

After a year’s worth of warnings about a recession, Federal Reserve chair Jerome Powell said Wednesday that the central bank’s staff no longer forecasts a nationwide economic downturn. It’s welcome news for the economy to achieve a soft landing, a scenario in which inflation falls, unemployment remains relatively low and a recession is avoided.

Housing activity, however, will be limited as the impact of tighter policy continues to reverberate through the economy, housing experts and economists projected following the Fed’s decision to raise interest rates by 25 basis points on Wednesday. 

Mortgage rates are expected to remain elevated until inflation moves to a level more consistent with the Fed’s mandate. High mortgage rates have triggered a rate lock-in effect across the country – disincentivizing homeowners to move and finance their new home with higher rates. 

“High mortgage rates triggered by the Fed’s policy have caused more sellers to sit on the sidelines given the large differential between the rate they enjoy on their current home compared to the possible interest rate on any home they may purchase today,” said Marty Green, principal at Polunsky Beitel Green, a law firm for residential mortgage lenders.

Data from Redfin showed that about 92% of homeowners have a rate below 6% and a record 60% of mortgage holders have lived in their home for four years or less – further contributing to the supply shortage.

“Higher mortgage rates change the trade-up calculation for existing homeowners and are keeping as many as 1 in 7 out of the market because they don’t want to give up their existing low rate,” Danielle Hale, chief economist at Realtor.com noted. 

Existing home sales dropped to a seasonally adjusted annual rate of 4.16 million in June from the previous month. Year-over-year, sales dipped 18.90% from 5.13 million in June 2022.

Hale expects the number of home homes for sale to decline this year, and continue to be a damper on home sales. 

“A large swath of outstanding mortgages has below-market rates, and this has led to a restriction in the supply of existing homes for sale,” Ruben Gonzalez, chief economist at Keller Williams, said.

During his press conference with reporters, Powell acknowledged that the housing market has cooled due to high rates, but also said it “has a ways to go” before home prices fall.

Powell also said more supply was coming. Though housing starts boomed in May and fell slightly to a seasonally adjusted 1.43 million units last month, supply is mostly coming from multifamily rental construction. Permitting data suggests future multifamily supply is slowing and developers of such projects are highly sensitive to high interest rates.

For now, first-time homebuyers are the most impacted group as higher mortgage rates cut into their purchasing power. 

High rates have made affordability exceedingly challenging, and low inventory in return increased competition, especially at lower price points.

The combined impact of higher rates and higher home prices has driven the cost of financing the typical listed home up more than $250 or 12.4% from a year ago; and up more than $1,100 or 96.5% from June 2020, nearly doubling the cost in three years, Hale noted. 

It’s not just the buyers that are getting sidelined. 

Renters are expected to get hit with higher rental rates, according to Justin Barry, partner at Morris, Manning & Martin.

While the Fed is attempting to stave off inflation by raising interest rates, it could actually have the opposite effect on rents, according to Barry.

“With each round of rate hikes, the Fed puts increasing pressure on multifamily properties with floating-rate loans or maturing fixed-rate loans. Many owners are attempting to pass along the increased financial burdens to tenants by increasing rental rates, provided that demand in a particular submarket supports higher rental rates,” Barry said.

With affordability challenges to persist, demand for new housing construction will follow.

“The onus is on homebuilders, as well as municipal, state and federal authorities, to take steps that will increase construction activity of owner-occupied single-family and multifamily housing to ease the affordability burden on would-be homeowners,” Kyle Enright, president of lending at Achieve, said.

Last hike of the year? The housing industry hopes so

While Powell emphasized any future policy decisions would be made on a meeting-by-meeting basis and that in the current environment, there is expectation that the central bank will pause its rate hike for this year.

“The Fed sounded surprised that we have disinflation factors without a hit to the labor market, which is positive because they might believe now they don’t need a job loss recession to help inflation data improve,” Logan Mohtashami, lead analyst at HousingWire said.

During a press conference with reporters on Wednesday, Powell said the Fed has “seen the beginnings of disinflation without any real costs in the labor market.”

​​Although inflation dropped to 3% in June, it is still above the Fed’s goal of 2%. Hiring still remains strong and the unemployment rate is hovering at very low levels. 

If jobless claims get better, they might hike one more time, but they’re sounding more confident than they’re restrictive now, Mohtashami said.

“It could be the last one for a while,” Melissa Cohn, regional vice president of William Raveis Mortgage, said.

Although the Fed previously signaled it was looking at one or two more increases this year, “we’re starting to see other weaknesses in the economy” and that may put the Fed on a pause after this month’s rate hike, Cohn noted.

Goldman Sachs projected that the FOMC will ultimately remain on hold at the September meeting as the committee leadership has advocated for a “careful pace” of tightening.

“If the Fed isn’t careful, this critical industry may once again slow to crawl in the fall and winter,” Green said. 

Source: housingwire.com

Apache is functioning normally

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Following a short breather with a pause last month and after 10 consecutive rate hikes, the Federal Reserve instated its eleventh increase since March 2022. The decision was announced after its two-day Federal Open Market Committee (FOMC) meeting.

Fed officials, in a unanimous — and much expected — July 26 decision raised interest rates by 25 basis points, taking the benchmark borrowing costs to their highest level in more than 22 years, as CNBC reported.

“Inflation remains elevated,” the Fed declared in a statement. “The Committee will continue to assess additional information and its implications for monetary policy.”

This new hike will have several consequences for consumers, many of whom have been facing financial pressure on several fronts.

One such consequence is a likely effect on mortgage rates, as questions arise as to what this new development means for homebuyers.

Home Prices Are Rising, Purchasing Power Is Declining

The combined impact of higher rates and higher home prices has driven the cost of financing the typical listed home up more than $250 (or 12.4%) from a year ago. Further, the cost of financing that home is up more than $1,100 from June 2020, nearly doubling the cost in three years, per Realtor.com chief economist Danielle Hale.

Hale said that higher mortgage rates cut into homebuyer purchasing power and have been an important brake on existing home sales, falling from a more than 6.5 million unit pace in early 2022 to the 4.2 million unit pace in recent months.

“Perhaps more importantly, higher mortgage rates change the trade-up calculation for existing homeowners and are keeping as many as one in seven out of the market because they don’t want to give up their existing low rate,” said Hale.

“As a result, I expect the number of homes for sale to decline this year, and continue to be a damper on home sales. Limited inventory is also keeping prices high even though housing affordability has deteriorated significantly in the past three years.”

Soaring Mortgage Rates Lock Would-be Sellers in, Triggering Increased Short Supply

Mortgage rates are double from where they stood a couple years ago. As of July 26, the current average 30-year fixed mortgage interest rate is 7.12%, according to The Mortgage Reports’ daily rate survey.

As Ted Rossman, senior industry analyst at Creditcards.com, said, at the end of 2021, that figure was just 3.27%. Further, during this rate-hiking cycle, mortgage rates have eclipsed 7% a few times, something we hadn’t seen since 2002 — akin to a 33% rise in home prices.

“And speaking of home prices, they have remained stubbornly high in large part because of low inventory. A lot of people aren’t moving because of the ‘golden handcuffs’ of a 3% or 4% mortgage rate they secured a few years ago,” said Rossman.

Rossman added that mortgage rates probably need to go below 5%, if not even lower, to stimulate a meaningful change. He noted, however, that there is also an element of “be careful what you wish for,” since a rapid drop in mortgage rates would probably only be caused by an economic downturn.

“The housing market will likely need to adjust to a ‘new normal’ of rates in the 6-7% range for a while, gradually coming down to 5-6%,” he concluded.

This analysis comes amid an already difficult market for homebuyers. Earlier this month, a Redfin report found that just 1% of the nation’s homes have changed hands this year — translating into prospective homebuyers having 28% fewer homes to choose from than they did before the pandemic upended the U.S. housing market.

When Will the Real Estate Market Turbulence Change Course?

Dottie Herman, vice chair and former CEO of Douglas Elliman, echoed the above sentiments. She said homeowners are not going to move and pay the current mortgage rate, which is around 7%, when they locked in at a much lower rate during the pandemic. Yet, Herman believed there will be some movement in 2024 as rates come down and people start to buy again.

“Millennials in particular believe in home ownership and are just waiting for a more favorable time to buy. Since the pandemic existing home prices have gone up 40% but recent homebuilder confidence has boosted new construction 20% since last year,” said Herman.

All in all, the rise in mortgage interest rates will continue to put pressure on affordability for would-be homebuyers.

However, given the lack of housing inventory, many will either adjust their budgets, search for lower-priced homes or remain renters, said Haseeb Rahman, portfolio manager at Palisades.

“Some homebuyers will have to decide whether to buy their dream home today and absorb the higher interest rates in hope of refinancing if rates decline in the future (i.e., ‘marry the house and date the rate’) or wait out the current market environment for lower rates and, perhaps, higher prices,” added Rahman.

A Silver Lining?

According to Michele Raneri — vice president and head of U.S. research and consulting at TransUnion — while the mortgage market may continue to be slow, it remains to be seen whether cooling inflation may help motivate consumers who had been holding off due to increasing cost of living.

“This remains an unpredictable market when it comes to mortgages,” said Raneri.

“Mortgage rates are, in fact, high, but at the same time, we have continued to see an improvement in other metrics such as unemployment, which lends to optimism. Ultimately, even as mortgage rates remain higher than we have seen in recent history, consumers may well become impatient as they wait on buying their first, or their next, home, and may re-engage with the market sooner than later.”

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Source: gobankingrates.com

Apache is functioning normally

Yes, we’ve all heard it. Buying a home today might seem like the most unaffordable, and therefore impossible, it’s ever been. Home prices are near record levels, pushed up by bidding wars erupting on anything well-situated and move-in ready. Plus, mortgage rates are nearing 7%.

But here’s the thing: The baby boomers had it worse.

In May of this year, the typical buyer spent just under a third of their household income, about 32.8%, on housing. As uncomfortable as that might be, it’s not even close to how much buyers plunked down in the early 1980s.

In 1981, the same year the AIDS virus was identified, the Iran hostage crisis came to an end, and “Raiders of the Lost Ark” topped the box office charts, homebuyers that September and October spent 51.3% of their household income on their mortgage payments.

Let that sink in for a moment.

Furthermore, that percentage doesn’t even include what they paid for utilities, property taxes, insurance costs, and homeowners association fees.

Buying a home is “not as unaffordable as it’s ever been,” says Realtor.com® Chief Economist Danielle Hale. But, “in the grand scheme of things, housing is pretty unaffordable right now.”

To figure out how affordable buying a home has been over the past 50 years, the Realtor.com data team analyzed data going back to 1973. We looked at monthly existing single-family home prices from the National Association of Realtors®, weekly mortgage interest rates for 30-year fixed loans from Freddie Mac, and median annual household income from the U.S. Census Bureau. Then we calculated the typical mortgage payment of a buyer taking out a loan on the median-priced home and what percentage of their household income that would eat up.

The analysis doesn’t factor in regional price differences, new construction, or the percentage of income that individual buyers spent on homes.

“If you go back in history, you can find a period where housing is more unaffordable than it is now,” says Hale. “But you have to go back almost 40 years.”

Why today’s buyers wouldn’t want to purchase a home in 1981

In the fall of 1981, homes were cheap by today’s standards.

The typical single-family home cost just $66,125—about six times less than the cost this past May, according to the most recent data from NAR.

However, the typical household was bringing in only about $19,074 in 1981, according to U.S. Census Bureau data. And mortgage rates topped 18% that fall. (And you thought 7% was rough.)

Those turbo-sized rates meant that 99.5% of a buyer’s first year of mortgage payments was going toward just the towering amount of interest on the loan. The buyer didn’t pay down 10% on the principal of the balance until the 18th year of the loan, assuming the buyer didn’t refinance—which most buyers did. (This calculation includes a 20% down payment.)

Today’s average family is earning about $73,505 a year. But in May, they were contending with median existing-home prices of $410,100 and mortgage rates hovering in the mid-6% range and which have since risen to the high 6% territory. About 85% of their first year’s mortgage payments is going to interest.

One important difference is that instead of waiting nearly two decades to have 10% of their principal paid off, they achieve that milestone by year seven.

“Mortgage rates play a really substantial role in how affordable housing is at any time, especially since so many buyers buy with a mortgage,” says Hale.

Uncomfortable similarities between 1981 and 2023

There are a few similarities between then and now. Inflation was soaring in the early ’80s, causing the U.S. Federal Reserve to hike interest rates. (Sound familiar?) The nation was also in a full-blown recession in 1981. Fast-forward 42 years, and the nation appears to be flirting with another downturn.

The number of home sales slowed in the early 1980s as well as in this post-pandemic housing market as fewer folks can afford to buy due to higher mortgage rates.

Then, as now, most of those purchasing homes earn more than the median income—unless they had very generous family members, stock options, or trust funds. Or they’re existing homeowners who can put the equity they built in their last home into their new one.

“Boomers have been saying things were harder when we were young for a long time. And in some respects, they are right,” says Hale. “But in other respects, they don’t have the same amount of student loan debt and child care costs that young people have today.”

Plus, once mortgage rates fell, most folks who purchased homes in the early 1980s had refinanced their loans to lock in the new rates and “drastically” lower their monthly mortgage payments. By 1986, rates had fallen back down to the single digits.

Recessions and pandemics may be good times to buy homes

As counterintuitive as this may seem, recessions may be financially advantageous for buyers to purchase homes—if they remain employed and have the funds to do so. That’s because interest rates usually (but not always, as the early 1980s demonstrated) fall during economic downturns. That makes homebuying more affordable.

Over the past 50 years, homes were the most affordable as the country climbed out of the Great Recession. In early 2012 and 2013, buyers were spending about 14%—or less—of their income on a home. That’s because mortgage rates were below 4%.

The same thing happened in the early days of the pandemic. The economy ground to a halt as stay-at-home orders proliferated and mass layoffs ensued. To stimulate the economy, the Fed cut interest rates and mortgage rates fell below 3%—for the first time ever.

Those low rates triggered the big run-up in prices and offset those gains. Since buyers were spending less on interest, they could afford to purchase more house. The result? In spring 2020, buyers were spending just under 18% of their income on housing.

“Affordability is one of the factors that kicked off the buying frenzy that we saw in the early part of the pandemic,” says Hale.

It wasn’t until mortgage rates climbed above 4% in March 2022 that buyers began to get priced out. That month they spent just under 25% of their income on housing. As rates ticked up and affordability worsened, more buyers left the market and fewer homes went up for sale (as sellers didn’t want to give up their low rates).

The situation has only gotten worse, with buyers spending nearly a third of their income on housing in May.

“When housing is unaffordable, it’s very tempting to stretch your budget,” says Hale. But with inflation, rising property taxes, and high energy bills, “now’s probably not a good time to do that.”

Source: realtor.com

Apache is functioning normally

The U.S. Federal Reserve this week slashed interest rates for the first time since the Great Recession in 2008, but experts say the move is unlikely to improve what is already a very favorable borrowing environment for home buyers.

The federal funds rate, which governs the rate banks charge each other for short-term borrowing, will now fluctuate around the 2% to 2.25% market, the New York Times reported.

The Federal Reserve said it had decided to lower interest rates in order to avert the threat of an economic downturn. It did so following months of pressure from U.S. President Donald Trump to do just that, though it didn’t say whether or not this actually impacted its decision.

But the rate cut is unlikely to mean the majority of home buyers will benefit from additional mortgage savings. Lawrence Yun, chief economist of the National Association of Realtors, said that as interest rates for a 30-year home loan already hover below 4%, the move may actually provide more benefit to borrowers who use non-traditional types of financing.

“Many borrowers will benefit, especially those with adjustable-rate mortgages and commercial real estate loans,” Yun said. “The longer-term 30-year fixed-rate mortgages will see little change in the near future because they had already declined in anticipation of this latest move by the Fed.”

However, Yun said the lower rates may help with housing affordability in the short-term, as both home prices and rents have consistently outperformed incoming growth in recent years.

“The only way to mitigate housing-cost challenges as a long-term solution is to bring more supply of both multifamily and single-family homes to the market,” the economist added.

At least, the lower cost of borrowing should help buyers to manage rising home prices better, said Danielle Hale, chief economist at realtor.com.

She explained that buyers who spend $1,500 per month on their mortgage can now afford to buy a home worth $402,500 this year, compared to just $367,500 last year, when mortgage rates hovered around 4.57%.

“Last year, buyers would have needed an additional $145 a month on top of the $1,500 to afford a $402,500 home,” Hale said.

In some places, home buyer’s money may stretch even further, Hale said. “An extra $35,000 in purchasing power, depending on where you are in the country, can really make a difference to buyers today. It still counts, even with home prices up 6% nationally. That increase in purchase power is greater than the national price increase,” she added.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
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Source: realtybiznews.com

Apache is functioning normally

Homebuyers watching mortgage rates should buckle up—but they probably won’t enjoy this ride.

Mortgage interest rates were above 7% for the past two weeks—much to the dismay of many cash-strapped buyers. They averaged 7.09% on Tuesday before falling to 6.96% on Wednesday for 30-year fixed-rate loans, according to Mortgage News Daily.

“Within the last 30 days, we’ve seen everything from low 6% to low 7%,” says Jason Lerner, producing area manager at George Mason Mortgage in Towson, MD. “That’s exceptionally volatile.”

It has, in fact, been a wild ride. Mortgage interest rates have been up, down, and then up again as investors try to guess the Federal Reserve’s next move. The Fed has been steadily hiking its own short-term rate to bring down inflation by cooling the economy.

When the Fed raises its own rates, mortgage rates have often followed. And Fed officials have indicated another rate increase—or two—is likely this year.

The results of the Fed’s actions have been mixed. Inflation has tumbled down to 3% annually in June. That bit of good news caused mortgage rates to fall below 7% on Wednesday. But while that’s a big improvement from when inflation was running at 9.1% during the peak in June 2022, it’s still higher than the Fed’s 2% goal. Other data, such as recent employment reports, shows the economy is still stronger than the Fed would prefer.

When a report comes out that shows employers are still looking for workers, consumers are still spending, or inflation remains high, investors worry the Fed will raise rates. So mortgage rates rise in anticipation of another Fed increase.

“We should expect a lot of bumping around,” says David Stevens, CEO of Mountain Lake Consulting, which provides consulting services to the mortgage industry. He’s also the former CEO of the Mortgage Bankers Association. “Whatever the economic news is, we see rates swing.”

Higher rates have made it more challenging for buyers to afford homes and incentivized many would-be sellers to stay put instead, worsening the housing shortage.

Even when mortgage rates do come down below 7%, buyers shouldn’t expect they will fall down to the record lows experienced during the COVID-19 pandemic.

“One can never truly predict the future, but I don’t see mortgage rates returning back to the 3% range in the remainder of my lifetime,” Lawrence Yun, chief economist of the National Association of Realtors®, told CNBC.

Where will mortgage rates go next?

Real estate experts don’t expect mortgage rates to remain this high forever.

By year’s end, Realtor.com® expects rates to be around 6.1%. Stevens believes rates will be back in the mid-5% to 6% range by the first few months of next year.

Once the Fed wrangles inflation down to its target, it should stop raising rates. The Fed is walking a tightrope trying to cool the economy without causing additional bank failures or pushing the nation into a recession. If the economy slumps too much, the Fed will likely cut rates to stimulate it. That should bring mortgage rates down as well.

“Rates will never go back to where they were to the peak of the COVID pandemic, which was in the 2% to 3% range,” says Stevens. “But they will normalize.”

Lower mortgage rates could lead to more homes for sale

Lower mortgage rates could help ease the housing shortage—and high home prices.

Right now, many homeowners are reluctant to sell. Most sellers are also buyers who don’t want to give up their ultralow mortgage rates to take out another mortgage with a rate that’s likely more than double what they have now. Many are waiting for rates to come down, at least to the 5% range, before listing their properties.

“Existing homeowners with a very low mortgage rate [have] very little incentive to decide to sell,” says Danielle Hale, chief economist of Realtor.com. The result? “There’s nothing to buy, it’s expensive to buy what’s available to buy.”

So when a move-in ready home in a desirable area is listed at a good price, it’s a bit of a unicorn in today’s market. Hordes of buyers typically descend, and that fierce competition bids up the price of the home.

“With an increase in mortgage rates, you’d expect a drop in property values,” says Roland Weedon, CEO of Essex Mortgage. Essex does business in 40 states, working primarily with first-time buyers and renters. “But because there’s such a shortage of inventory, that hasn’t happened.”

Mortgage lender Lerner is seeing borrowers stretch their “comfort levels” with higher mortgage payments to make homeownership work.

He’s also seeing buyers offer lower down payments. They’re using the rest of the money that would have gone toward their home to pay down other debt, so they have more money available for monthly mortgage payments.

“The fact that we’re back at this point again could be a drag on the housing market in the months ahead,” says Hale. “We do expect mortgage rates will eventually decline. It’s going to take some more progress on inflation.”

What determines mortgage rates

While rates are influenced by the Fed’s rates, and often move in the same direction, they’re more tied to what’s happening in the bond market.

After a mortgage is made, lenders will typically bundle it up with other loans into a mortgage-backed security, aka mortgage bonds. Then those are sold to investors on what’s called the secondary mortgage market. This gets the mortgage off of a lender’s books, freeing up more money to make new loans.

If investors believe the Fed is likely to keep hiking rates, they’re often reluctant to purchase mortgage bonds. One reason is they assume that the borrowers of those mortgages are likely to refinance those loans once rates fall again. There are also more mortgage bonds on the market for investors to choose from as a result of the bank failures. The FDIC is selling the portfolios of Silicon Valley Bank and Signature Bank. This makes these bonds less valuable.

As mortgage rates are the inverse of bond prices, when bond prices are down, mortgage rates go up.

“Going forward, we can expect rates to continue paying a tremendous amount of attention to incoming economic data,” says Matthew Graham, chief operating officer at Mortgage News Daily. “Traders are on the edge of their seats, waiting for evidence that the economy and inflation are finally cooling off in a meaningful way. … When it happens, we should see a reasonably swift move back toward more livable rates.”

Source: realtor.com

Apache is functioning normally

The U.S. Federal Reserve just gave stretched-thin homebuyers a rare break.

The Fed held interest rates steady on Wednesday, declining to jack them up higher this month in its fight to tame inflation. That’s expected to nudge mortgage interest rates down a little by year’s end, potentially saving buyers some money. (While mortgage rates are separate from the Fed’s rates, they often move in the same direction.)

“Mortgage rates have likely peaked,” says Realtor.com® Chief Economist Danielle Hale. “But we’re not going to see a sudden or sharp decline. It’s going to be gradual.”

By year’s end, mortgage rates nationally could drop to the low 6% range as long as inflation continues to slow, predicts Hale. She expects they will eventually head back down to around 5% over the next few years.

Mortgage rates averaged 6.71% for 30-year fixed-rate loans in the week ending June 8, according to Freddie Mac. They averaged 6.95% as of Wednesday, according to Mortgage News Daily. They had fallen below 3% in 2020 and 2021.

“Activity in the housing sector remains weak, largely reflecting higher mortgage rates,” Fed Chair Jerome Powell said during a Wednesday press conference. “Certainly, housing is very interest rate-sensitive, and it’s the first place, really, or one of the first places, that’s either helped by lower rates or is held back by higher rates. And we certainly saw that over the course of the last year. We now see housing putting in a bottom and maybe moving up a little bit. We’re watching that situation carefully.”

Slowing inflation likely helped the Fed decide against jacking interest rates up any further this month. In May, inflation rose 4% year over year. While inflation is roughly double the Fed’s 2% target, inflation isn’t rising as much as April’s 4.9% year-over-year jump, according to the government’s consumer price index. And it’s far below the 9.1% surge of last June.

Plus, the cost of housing, which makes up about a third of the goods and services that are used to measure inflation, is expected to come down this year. That will mostly be a result of falling rental prices, although moderating homeownership costs could also help bring inflation down as well.

The Fed also doesn’t want to put any additional pressure on the banking industry, after several banks recently failed.

“We’ve still got a ways to go, but we’ve made some substantial progress in inflation,” says Hale.

However, the Fed indicated it will likely raise rates next month if inflation doesn’t fall further and the economy continues on its hot streak. Another hike could also happen later this year.

That would likely boost mortgage rates higher than Hale originally anticipated.

“We’ll still be under 6.5%,” she says. “We just won’t get as close to 6%.”

Falling home prices could also help cash-strapped homebuyers. Nationally, the median home list price dipped for the first time year over year since Realtor.com began collecting weekly data in mid-2017. Prices slipped 0.9% for the week ending June 10, according to the most recent data.

Sellers have been forced to adjust their prices to a reality where buyers’ budgets can’t stretch quite as high anymore. Sale prices have been dropping for existing homes, which excludes new construction, since February, according to the National Association of Realtors®. Now, asking prices are catching up.

“There will be some relief,” says Hale. “The number of homes for sale is still pretty limited, so we don’t expect to see big price declines.”

Source: realtor.com

Apache is functioning normally

The moment homebuyers have been waiting for has finally arrived.

For six long years, home prices have been climbing higher, topping the previous year’s number month after month. In June 2022, Americans suffered serious sticker shock when median listing prices hit an all-time record high of $449,000.

This June, however, prices did not edge higher still. Instead, they slid to $441,000, according to the Realtor.com® Monthly Housing Trends Report.

This $8,000 drop from the previous year’s price might not seem like much, but as the first annual decline seen in Realtor.com data history since 2017, it’s a pivotal moment, people! Let us pause for a moment and appreciate this.

Plus, home prices tend to peak seasonally in June, then descend toward the holidays. This means homebuyers should look forward to even lower prices for the rest of 2023.

“Home price growth is expected to decline at a modest rate of 0.6% for the year,” Realtor.com Chief Economist Danielle Hale predicts in her analysis

Why lower home prices may not mean lower housing costs

The downside, however, is that homebuyers might not feel these savings in the face of today’s mortgage rates, which are still significantly higher than last year. Rates for a 30-year fixed-rate mortgage averaged 6.67% for the week ending June 22, according to Freddie Mac.

“The issue of affordability persists,” Hale continues. “It will continue to create barriers to homeownership, leading to weakened demand in the housing market and dampened competition.”

How home sellers are reacting to lower prices

Across the country, homeowners have heard the news: The red-hot seller’s market that had driven prices into the stratosphere is over. Many are reacting to these new market conditions by simply staying put.

In June, the number of homes newly listed for sale declined by 24.1% compared with the same time last year.

Some who hoped to sell could be disappointed that they can’t fetch the same nosebleed prices their neighbors did a year earlier. Others might be willing to accept a lower price but feel “locked in” by the much lower mortgage rate they already have on their current home.

Nonetheless, the total number of homes for sale (both new listings and old that have been on the market for a while) is up by 9.5% compared with last year. So although fresh listings are down, there’s still plenty of selection, and many might be long in the tooth and ripe for price cuts. A full 14% of homes had price reductions, although this is lower than the levels seen between 2017 and 2019.

Hale also predicts that this inventory will start shrinking in the second half of he year.

“We project that housing inventory will experience a modest slip of 5% for 2023 as a whole as early-year gains become declines in the second half of the year,” she says.

Selling a home: A marathon, not a sprint

This June, the typical home spent 43 days on the market, which is two weeks longer than the same time last year. But even though the pace of sales is slowing, homes still sell around 10 days faster than they did in the average June from 2017 to 2019.

“In most areas, the housing market continues to move much faster than it did in the pre-pandemic era, despite significant slowing from the frenzied pace of the past couple years,” Hale says.

Homes in the South and the West, both of which saw the greatest influx of new residents and biggest price gains of the past few years, had the biggest increases in time on the market. In the South, homes took 15 days longer to sell than last June, and in the West, it was 10 days. In the Midwest and the Northeast, both of which are still relatively more affordable, the number of days on the market was only seven days greater.

All in all, this month’s pivotal price drop is not quite enough to revive buyers or the housing market to its previous levels.

“Despite the decline in prices,” Hale says, “the ongoing challenges in housing markets and stagnant buying power are anticipated to result in a 15.8% decrease in home sales for 2023.”

Source: realtor.com

Apache is functioning normally

The era of low mortgage rates is over. Embracing this reality will hasten your owning a house that meets your needs.

Low rates flourished for 11 years, as the 30-year mortgage remained below 5% from February 2011 to April 2022. Since then, it has remained mostly above 5%, averaging 6.72% in June in Freddie Mac’s weekly survey.

Some forecasters predict that rates will decline over the next 12 months. But they don’t foresee rates dropping below 5% anytime soon. If you want to buy a home, it’s tempting to be in denial that this is happening. But as you start to accept that we’re now in a time of higher rates, you can achieve closure (literally, when you close on the purchase of a home).

“People are still working through their five stages of grief on this mortgage rate stuff,” says Lisa Sturtevant, chief economist for Bright MLS, the real estate listing service for the mid-Atlantic region. “And I think you have to reach the stage of acceptance at some point that certainly rates aren’t going to come down to where we were back during 2020 and 2021.” (When the median 30-year rate was 2.99%.)

Forecasters predict a modest decline in rates

Let’s brighten that grim outlook by detailing how Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors all forecast a gradual, moderate decline in mortgage rates through at least the first three months of 2024.

Those three organizations are not alone in their prediction that mortgage rates will go down, but no one expects rates to plunge back to where they were two years ago.

“I still think we’re going to see rates stabilizing and then moving slowly down this year and we’re going to end 2023 at 6%,” Sturtevant says.

Danielle Hale, chief economist for Realtor.com, said in an email that “our base expectation is that it will take until the end of this year or early next year before mortgage rates get back to 6%.”

A dissenting voice comes from Zillow, where senior economist Orphe Divounguy said by email, “Buyers should not count on any dramatic rate falls in the next few years.” Mortgage rates, he said, will end 2023 above 6%.

One takeaway from these forecasts: Sure, mortgage rates might drop a little. Maybe. If the forecasters are right. But if you hold out for dramatically lower rates, you’ll probably wait in vain. And if they do fall substantially after you buy, you can refinance.

Inflation is the wild card

What if you want to do your own research? Economists monitor tons of data when forecasting mortgage rates. But if you ask them what regular folks should keep an eye on, they reply as one: inflation.

According to Hale, “It’s not linked one-to-one with mortgage rates, but an easing in the pace of general price increases will help bring mortgage rates down for two reasons.”

For starters, diminished inflation will hasten the end of Federal Reserve rate increases. Second, lenders will “stop baking in a larger inflation premium into mortgage rates.” They do that “to account for the fact that future dollars that are used to pay back the investment aren’t as valuable,” Hale explained.

Most people gauge inflation by the price of gasoline and eggs. Your boss’s boss’s boss swears by the consumer price index. The monetary policymakers at the Federal Reserve rely on an inflation measurement called core PCE, for personal consumption expenditures. “Core” means that energy and food (gasoline and eggs) are stripped out because their prices are volatile.

The Fed’s goal is to keep core PCE around 2%, but it has been higher than 3% for more than two years. From January through April (the latest data available), core PCE was 4.6% or 4.7%. Core CPI has been higher but falling.

“As long as inflation eases, that’s the main factor that will bring our mortgage rate down,” says Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors.

But if inflation stays spitefully high, mortgage rates will remain elevated.

If you’re pining for 3% rates — they’re not coming back

Let’s say the Fed eventually succeeds in taming inflation to 2%. That will be worth celebrating, but it doesn’t necessarily mean mortgage rates will wander south of 5%.

The Mortgage Bankers Association forecasts the 30-year mortgage will dip below 5% toward the end of 2024, but Fannie Mae and the Realtors don’t predict rates will fall that far.

Do what makes you happy

It’s not realistic to put a home purchase on hold in the hope that mortgage rates will return to 2020 and 2021, when the 30-year mortgage held its breath under 4% the entire time. The median rate over the past 30 years is 5.77%. That’s the reality that we’ve returned to.

If you want to buy your first home, you’re probably going to pay well above 5% on a 30-year mortgage, and you’ll have to establish a budget with that in mind. If you’re a homeowner, you dread giving up your current low-rate mortgage and getting a higher-rate loan on the next house. That’s understandable, but as Miranda Lambert once sang, “there’s freedom in a broken heart.”

Whether you’re looking for a bigger place or a smaller home, or one better located for schools or your commute, you might end up satisfied — even after trading a low rate for a higher rate.

Source: nerdwallet.com