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Prospective homebuyers hoping for a significant drop in mortgage rates this year might need to recalibrate their expectations.
Freddie Mac’s U.S. Economic, Housing and Mortgage Market Outlook report for June forecasts that rates will hover above 6.5% through the end of the year amid persistent inflation, despite an anticipated Federal Reserve rate cut. Currently, the average 30-year fixed rate is 6.87%.
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“Mortgage rates have been volatile over the past month, fluctuating between 6.9% and 7.2%; they remain relatively high, deterring home sales,” the report stated. “Despite robust housing demand driven by first-time homebuyers, we expect home sales to remain muted.”
Sales of existing homes fell 0.7% in May to a seasonally adjusted annual rate of 4.11 million, marking a 2.8% decrease from the previous year, according to data from the National Association of Realtors (NAR) released last week. The median existing-home sales price surged to a record $419,300, up 5.8% from May last year, marking the eleventh consecutive month of year-over-year price gains.
This price increase has led to a growth in the inventory of unsold homes, which rose 6.7% from April to 1.28 million — a 3.7-month supply at the current sales pace.
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“Eventually, more inventory will help boost home sales and tame home price gains in the upcoming months,” said Lawrence Yun, Chief Economist at NAR. “Increased housing supply spells good news for consumers who want to see more properties before making purchasing decisions.”
As noted in Freddie Mac’s report, the mortgage market is currently dominated by first-time homebuyers, while existing homeowners with low mortgage rates from previous years are disincentivized to sell their homes.
The lack of movement from trade-up buyers, who typically help create a healthy churn in the housing market by selling entry-level homes and moving to higher-value properties, is adding to the broader stagnation in the market. With potential sellers staying put, new listings are scarce, and the construction of new homes isn’t keeping pace with demand, further straining the market.
Freddie Mac projects that unless there’s a sharp and sustained drop in mortgage rates or a boost in new construction, the tight inventory and high prices will continue to dominate the market landscape, perhaps through 2025.
While the expected rate cut might provide some comfort, its practical effects on improving market accessibility and affordability may be limited. “Given persistent inflation, achieving rates below 6.5% is challenging. Our forecast suggests a modest increase in total origination volumes this year and next, primarily driven by home prices,” the report said.
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This article Prospective Homebuyers Get Little Respite As Mortgage Rates Expected To Plateau, Freddie Mac Predicts originally appeared on Benzinga.com
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Source: finance.yahoo.com