Mortgage rates surged closer to 7% this week, further worsening housing conditions for buyers.
The rate on the 30-year fixed mortgage increased to 6.79% from 6.57% the week prior, according to Freddie Mac, on expectations the Federal Reserve will hike interest rates again. For the past eight months, rates have stayed between 6% and 7% with few signs of significantly softening anytime soon.
Elevated rates — along with still-high home prices — have been a blow for homebuyer affordability and have convinced many homeowners to delay listing — worsening inventory conditions in a supply-starved market.
“Both buyers and sellers have backed off from the market because mortgage rates are so high,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance. “They’ve made homebuying more expensive. Homeowners who were able to lock in 3% mortgage rates a little over a year ago don’t want to give up those rates and are not selling.”
“So we’re seeing way fewer transactions this time of the year,” she added.
The dearth of deals was evident in other data this week.
For instance, the share of applications to purchase a home slid 3% last week from a week earlier, according to the Mortgage Bankers Association’s survey. Overall, buyer demand is 45% lower than the same week one year ago.
“Although there has been a steady flow of purchase demand around rates in the low to mid 6% range, that demand is likely to weaken as rates approach 7%,” Freddie Mac Chief Economist Sam Khater said in a statement. Khater noted that a “buoyant economy” has convinced many market watchers that more Fed hikes are on the way.
A separate study by real estate analytics company Altos Research found the number of pending sales that should complete in June and July sat at 398,000 last week, unchanged from the week prior. That’s even as inventory rose 2% or the week ending May 29.
“That could be a signal that some buyers froze as rates jumped,” Mike Simonsen, founder of Altos Research wrote in a blog post.
Higher rates have also left a growing share of homeowners reluctant to list this spring. Those who have put their homes on the market may find they have the upper hand against buyers.
“We had a house on the market for only a couple of days and right off the bat we had four buyers through its first day listed,” Monte Miner, real estate agent at Ironwood Fine Properties, told Yahoo Finance. “That’s a good sign that the place is going to sell at or even above expectations, but buyers won’t get the opportunity to negotiate when competition is high.”
That’s if buyers can even find a house to purchase.
For instance, an index measuring the volume of signed contracts was unchanged in April from March, even though the spring is the busiest time to list and sell a home, according to the National Association of Realtors last week.
Similarly, the number of homes that went into contract this week was down almost 5% from the previous week and down 14% from the same time a year earlier, according to Altos Research.
“We know that demand for housing has outpaced supply all year. But mortgage rates really jumped this week … There are signals that some buyers put their actions on hold,” Simonsen wrote. “If rates stay … do the little green shoots of market strength quickly wither away?”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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