Mortgage rates topped 7% for the first time since April 2002, adding more reason for price-hit homebuyers to stay on the sidelines.
The average 30-year fixed mortgage rate hit 7.08%, up from 6.94% a week earlier, according to Freddie Mac. Rates have risen 3.86 percentage points since the start of the year, the most largest to date in over 50 years.
The dramatic rise in rates, fueled by the Federal Reserve’s aggressive inflation-fighting, has crushed demand from home buyers, while home sellers continue to lose confidence as price cuts become deeper. common.
“As mortgage rates and inflation continue to put pressure on homebuyers, demand will continue to be quite weak, and in turn I see it continuing to push prices lower,” George Ratiu, senior economist and economic research manager for Realtor.com. Money. “The big question is what needs to happen for us to see lower prices. It is unsustainable to expect prices to continue at high levels.”
Rate hikes scare homebuyers
The demand for mortgages remained at its lowest point in 25 years last week, the Mortgage Bankers Association The survey for the week ending Oct. 21 found that higher rates and economic uncertainty continue to erode buyer confidence. The volume of applications for mortgages for purchase decreased by 2% compared to the previous week and was 42% lower than the same week of the previous year.
Rate increases have caused the share of homebuyers to shift toward lower-interest-rate products, MBA data showed, such as Federal Housing Administration loans and adjustable-rate mortgages (ARMs) for ease the financial burden.
“Homebuyers feel like they are in a race, the Fed against affordability, with very little chance of winning,” Adriana Perezchica, president of Via Real Estate, told Yahoo Money. “I have been getting calls from buyers trying to qualify or just starting to explore options to buy, I can hear in their voice the uncertainty of the times ahead, they would really like to get into a home, however the weather has changed. It has not been very favorable and the payments are unattainable, they have to settle for the minimum approved at prices that do not exist in the current market”.
The average listing price was $427,000 in September, according to Realtor.com, 13.9% more than last year. At last week’s rate of 6.94%, a monthly payment would be $2,260 after offering at least a 20% down payment.
The numbers have pushed many to reconsider their purchase plans or lower their expectations, Perezchica said.
“I have this family where mom, dad and their two adult children have to get pre-approved to qualify for $500,000. There are more options for them at this price, their payment will be $4,460, just out of their comfort zone,” said Perezchica. “They chose to search only for houses up to $400,000; this has put them at least an hour and a half outside of metropolitan areas and with minimal options in bedrooms and bathrooms for such a large family.”
“This is a typical story in the last couple of months,” Perezchica said, “where a lot of buyers have been discouraged from buying a home right now.”
Home Sellers Retreat
The drop in demand from homebuyers has persuaded more sellers to stay.
The number of homes for sale at the end of September was 1.25 million, according to the National Association of Realtors, down 2.3% from August. New listings also fell 17%, another sign that sellers are pulling out of the chilled market.
Fewer than 46% of home listings written by Redfin agents in September faced competition, the lowest level since the start of the pandemic. As a result, a record 22% of homes for sale in September had a price reduction.
“For many, when they look at what it would cost to change, they are not only looking for a more expensive house, but they are looking for a mortgage that, in some cases, is double what they have now. Ratius said. “The impact on household budgets is significant.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.