The housing market is shifting rapidly.
Let’s start with interest rates. The latest Freddie Mac 30-year fixed-rate mortgage average came in at 4.42%. That is more than a quarter of a percent higher than the week prior. Freddie Mac economists note many reasons for the significant increase, saying “Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power. In short, the rise in mortgage rates, combined with continued house price appreciation, is increasing monthly mortgage payments and quickly affecting homebuyers’ ability to keep up with the market.”
Lawrence Yun, the chief economist for the National Association of Realtors, echoed that sentiment in the NAR’s recent publication on existing home sales. “Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” said Yun. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate.”
Existing-home sales dropped by 7.25% month-over-month in February, according to the NAR’s data with an annual decrease of 2.4%. New home sales face a different kind of headwind with delayed construction due to supply chain issues and labor shortages. The Census Bureau reports the median price for a new home is up nearly 11% year-over-year, hitting $406,000 in February. However, the inventory for new homes is increasing with a 6.3 months supply now vs. 4.5 months a year ago.
This all adds up to a very frustrating, brutally competitive housing market where many potential homebuyers feel like they cannot compete. So what is happening to combat these headwinds for buyers?
Inflation is the first thing being tackled by the Federal Reserve and it is taking a very aggressive stance. The Fed recently implemented its first rate hike in three years, raising the federal funds rate to 0.25%. Fed Chair Jerome Powell has indicated that future hikes could be more aggressive to the tune of 0.50% increases instead of quarter-point increases.
It will also be extremely important to watch and see what develops on the international stage as Russia continues its assault on Ukraine. A NATO summit taking place in Brussels will result in more volatility in the global economy and affect the U.S. stock markets in the near-term.
In response to the summit, yields on the benchmark 10-year Treasury note were moving up and are now consistently coming in well above 2%. Less than three weeks ago the 10-year note yield was just above 1.7%. Mortgage rates tend to follow the movement of the 10-year note yield which helps explain why mortgage interest rates have moved higher so rapidly.
If you are looking for a source of relief with regard to rates, that will likely not happen this year according to forecasts from many economists. Many predict the moves by the Fed will help to tamper inflation, but mortgage interest rates will not move down and instead are likely to keep rising even higher throughout 2022. That means if you are currently in a position to buy a home, keep in close contact with your loan officer to ensure you lock in a rate at an appropriate time.