Home News Steep mortgage rates and high prices: why the housing market is slowing down

Steep mortgage rates and high prices: why the housing market is slowing down

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The housing market is currently slowing after rising demand for new homes, pushing listing prices higher after mortgage rates hit record lows during the pandemic.

This is good news for buyers who can stay in the market. However, high mortgage rates and skyrocketing house prices have made it difficult for some to buy a new home, so many potential buyers are getting prices down. At the same time, construction of new homes has fallen and rents continue to rise as builders become wary of falling demand.

“Buyers now have bargaining power for the first time in years,” said Nicole Bashaw, senior economist at Giro. .”

Below are seven charts that help explain what’s happening in the housing market.

The average 30-year fixed mortgage rate reached 5.66% as of September 1st. According to Freddie Mac data. The rate has fluctuated in recent weeks, although it is slightly down from its June peak of 5.81%, its highest level since 2008.

During the pandemic, concerns about the coronavirus and its impact on the U.S. economy caused mortgage rates to plummet (30-year fixed mortgage rates hit 2.65% in January 2021). The demand for homes increased as the cost of buying a home became significantly cheaper as people paid less interest each month as mortgage rates fell.

Mortgage rates rose sharply earlier this year, partly because the Federal Reserve began raising interest rates to combat high inflation.Federal Reserve Board Do not directly set interest rates on mortgagesIn general, the higher the interest rate, the more expensive it is to borrow money across the economy. Fed policy is also one of the factors influencing the 10-year Treasury yield, which fixed mortgage rates tend to track. As mortgage rates rise, more buyers are being discounted from the housing market, cooling demand and increasing the supply of available homes.

Sales of new detached houses and detached houses existing house High mortgage rates and home prices are pushing potential buyers out of the market, indicating a cooling in demand. Sales of new single-family homes in July fell 12.6% from June, at a seasonally adjusted annualized rate of 511,000 units, according to the U.S. Government. Census Bureau dataThis is the lowest level in almost seven years.

As the competition cools down, so does the amount of time the list is on the market. The percentage of U.S. homes listed for more than 30 days without a deal rose 12.5% ​​year-over-year in July. According to Redfin data.

Home prices soared early in the pandemic as more Americans tried to take advantage of lower mortgage rates.Low mortgage rates and already housing shortage It led to a bidding war among potential buyers who were making above-listed offers to beat their competitors.

Prices are starting to fall, but are still much higher than they were a year ago. The median resale home price in July was $403,800, according to the. Data from the National Association of RealtorsThat’s down $10,000 from June, but still 10.8% higher than a year earlier.

In some areas, house prices have fallen more rapidly, especially in towns where demand for housing has increased during the pandemic. For example, in Boise, Idaho, his 70% of homes for sale dropped in price in his July. According to Redfin analysisIn other cities such as Denver, Colorado, 58% of housing prices fell in July.

Construction of new homes has slowed as builders grow more concerned about falling demand due to higher mortgage rates. Housing starts, or the start of construction of new housing units, fell to 1.45 million in July. According to Census Bureau data. It decreased by 9.6% from the previous month.

Builder confidence also fell for the eighth straight month in August as they struggled to cope with lower housing demand and rising construction costs due to ongoing supply chain problems. National Association of Home Builders Survey.

“The total number of single-family homes will decline in 2022, for the first time since 2011,” said Robert Dietz, the association’s chief economist, in a statement.

After a steady rise earlier this year, new registrations fell to 670,766 in July. According to Redfin dataThis is a decrease of 132,649 new listings from the previous month.

Redfin chief economist Darryl Fairweather said the data shows potential sellers are holding off amid slowing home price growth. is also strong, meaning homeowners have record wealth and feel no pressure to list their homes.

“They were able to lock in very low mortgage rates, so there’s no reason to sell,” Fairweather said. If we can’t afford to pay, we’re going to see prices fall much more quickly than they do now, but I think that’s unlikely.”

Even with fewer new listings, total inventory of homes for sale is rising as supply improves. The number of active selling listings in July increased by 5.1% from the previous month, marking the fifth consecutive month of inventory increases. According to Zillow dataStill, a lack of new listings and a slowdown in new construction have hampered a significant increase in supply.

Rents also jumped during the pandemic, but the pace of growth began to slow. Average monthly rents were $2,031 nationwide in July, up 0.6% from June and 13.7% from a year ago. According to Zillow data.

Rents typically rise over time and prices rarely fall, so rents can be even higher. KPMG economist Jelena Maleev said demand in the rental market is likely to remain high as future homebuyers lower prices due to higher mortgage rates and higher property prices. says.

“If so many people can’t afford to buy a home because of rising house prices and rising interest rates, what do people have to do? They have to remain renters. No,” Maleev said.

Housing affordability across the country plummeted as mortgage rates rose. According to the National Association of Realtors’ Home Affordability Index, which measures whether the average family earns enough to qualify for a mortgage on a typical home. Affordability fell in June as monthly mortgage payments rose 53.7% and median household income rose 5.8% compared to his year ago.

Affordability is declining and various indicators look worrying, but a significant decline in the housing market remains unlikely, said Zillow economist Bachaud. Bachaud said the market is going through a “strange transition period” to rebalance supply and demand after buyers struggled to find enough options early in the pandemic.

“What’s going on in the housing market right now looks really scary compared to where we’ve been,” Bashaw said. It’s important to remember that it’s a rebalance to get back.”

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