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Mortgage rates bounced higher again this week, making homebuying even more expensive at the start of the all-important spring market.
With home prices skyrocketing, any rise in rates knocks even more potential buyers out of the running, and yet somehow the housing market is more competitive than ever.
The average rate on the 30-year fixed mortgage hit its last low of 2.75% at the end of January, and has since climbed pretty steadily, according to Mortgage News Daily. After a sizeable move overnight, it now stands at 3.45%.
“Since the beginning of February, the total damage is nearly 3/4ths of a percent, making it one of the biggest moves in any 6 weeks, ever,” said Matthew Graham, chief operating officer at Mortgage News Daily.
“The purchase market always weathers these storms, and the ultra-tight supply situation coupled with still-ravenous demand in many metro areas may keep the housing market surprisingly buoyant. The bigger question is when rising rates will ultimately impact prices.”
The rate is the same now as it was a year ago. The difference from a year ago, however, is that home prices are soaring.
Prices are now up over 10% from this time in 2020, according to CoreLogic, and there appears to be no letup in the gains. This is due to the record low supply of homes for sale.
Homebuilders are not stepping up as much as hoped, because they are facing higher costs for land, labor and materials. They also continue to experience delays in getting materials to job sites, due to Covid. Single-family housing starts came in much lower than expected in February, and the backlog of unbuilt homes is rising.
“There has been a 36% gain over the last 12 month of single-family homes permitted but not started as some projects have paused due to cost and availability of materials,” said Robert Dietz, chief economist of the National Association of Home Builders. “Single-family home building is forecasted to expand in 2021, but at a slower rate as housing affordability is challenged by higher mortgage rates and rising construction costs.”
New homes already come at a price premium to existing homes, so rates are particularly important to that market.
For a new home with an estimated median price of $346,757 in 2021 and the recent 30-year fixed-rate mortgage rate of 3%, a quarter percentage point increase in the interest rate would price out approximately 1.3 million households, according to a new calculation by the NAHB.
The supply crunch of existing homes is only exacerbated by higher mortgage rates. Homeowners who sell would likely have to buy their next home at a higher interest rate, so that’s a significant deterrent to moving.
The number of newly listed homes for sale for the week ended March 13 was 24% lower year over year, according to realtor.com. The total number of homes for sale is now half of what it was a year ago.
While this situation makes it harder for buyers, it also shows that buyer demand has not fallen off much, even in today’s higher rate environment. If buyers had fallen back, the supply would be rising.
Buyers are in fact, “flooding the housing market early this year, eager to find a home of their own,” according to Danielle Hale, realtor.com’s chief economist. On average, homes are selling seven days faster than last year.
Housing demand was pulled forward last year. The pandemic created an emotional need to nest, not to mention a practical need for more space, given the work- and school-from-home environment. Even as vaccinations rise and more people go back to offices and schools, homebuyers are still not only out in force but are increasingly competitive.
Just over a third of homes sold in February went for more than their original asking price. That is the largest share on record, according to Redfin, a real estate brokerage.
“This is the strongest seller’s market since at least 2006,” said Daryl Fairweather, Redfin’s chief economist. “Buyers outnumber sellers by such a huge margin that many homeowners are staying put because they know how hard it would be to find a place to move to.”