Mortgage rates have risen over 4% after nearly 3 years, stirring concern that the housing market will once again burst and collapse in the near future.
Contracts to buy previously owned homes, a leading indicator of home sales, fell for 3 consecutive months from January to March of 2022.
The National Association of Realtors said that existing home prices have dropped 7.2% since February 2021. This marks the largest drop in sales yet for the year 2022.
However, according to David Berson, chief economist at Nationwide in Columbus, Ohio, “It will take a sharper drop in sales to bring the market back into balance and allow prices to increase at a more modest pace.”
Data from mortgage finance agency Freddie Mac, shows the mortgage rate has averaged 4.16% in the last week, greater than the market’s last all-time high in May 2019.
Still, rates are expected to rise further after the Federal Reserve raised its policy interest rate by 25 basis points.
Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina, noted, “Homebuyers have likely missed their opportunity to lock in ultra-low mortgage rates.”
However, he also commented that the 30-year conventional mortgage has been higher than it is now for 90% of the last 30 years, which he viewed as “an important reminder that home sales should remain fairly strong even if mortgage rates rise a bit further.”
Higher mortgage rates and house prices, amid a housing shortage, reduces affordability for all buyers, but especially new ones. In the year between February of last year and February 2022, the median existing house price has risen 15% to $357,300.
Similarly, according to the National Association of Realtors, the average monthly mortgage payment has increased by 28% since a year ago, posing a significant financial hardship on first-time buyers, who accounted for only 29% of sales last month. According to economists and realtors, a healthy housing market requires a 40% share of first-time buyers.