According to new data from Realtor.com, home prices are being lowered, homes are taking longer to sell than a year ago, and now home buyers have five houses from which to choose, compared to four just a year ago.
However analysts say buyers still are not in the driver’s seat, despite the cooldown in the market.
Deepa Raghavan, senior equity analyst at Wells Fargo Securities, said in an interview, “It is still a tough time to be looking and if you think about it from a buyer’s perspective, the mortgage rate has almost doubled since the beginning of the year. If you find the inventory that you like, you’re paying a lot more than initially planned at the beginning of this year.”
The rate on a 30-year fixed rate mortgage hit 6.3%, the highest since October of 2008, as it has risen 3 percentage points since the start of the year.
Raghavan said, “If the 30-year mortgage rate stays above 6% or even heads to 6.5%, it’s going to be a very tough situation for the buyer. But if the 30-year mortgage rate somehow is at 6% or below, it gives enough time between now and the spring for the buyers to recalibrate their affordability levels and probably then step in the market at that time.”
Homebuyers have had it tough so far this year, facing low inventory, rising mortgage rates, and increasing competition from institutional investors which are increasingly looking to park large quantities of cash in real estate investments. That has produced what some analysts have described it as the worst housing affordability crisis in some time.
Another factor affecting home sales is what is being called, “rate-lock-in,” where homeowners who are presently enjoying a low mortgage rate on their present house are hesitant to sell and re-enter the market as a buyer, where they will end up securing a new mortgage at the higher rates. Presently more that 85% of homeowners have a mortgage with a rate below 6%.
As a result, inventory is being kept lower and that is providing a floor for prices.
At the same time, buyers are hesitant to wait to buy with rates on a steady path upward, and that increased demand is also acting on prices.
Raghavan noted, “Would you want to wait for prices to fall further even if you could afford it? I don’t think right now it makes sense — it could actually stem the bleed. Buyers definitely have been hurt and mortgage rates are actually trending higher.”
The Daily Financial Trends
