Mortgage Rates Hurt Buyers More Than Home Prices

Mortgage rates were back on the rise this week, hitting an average of 5.55%, Freddie Mac reported Thursday. Rates are nearly double what they were a year ago, and the latest housing data from the National Association of REALTORS® demonstrates the impact of the jump in borrowing costs.

The nation is witnessing a “housing recession,” says NAR Chief Economist Lawrence Yun, as existing-home sales plummeted 20% year over year in July, according to NAR data. Contract signings also dropped 20% in the same month. And there’s been a significant pullback in the new-home market—sales in the sector were down 30% annually in July—causing homebuilder sentiment to slide for the eighth straight month.

Further, “apart from rising mortgage rates, home prices continue to show double-digit year-over-year gains,” Nadia Evangelou, NAR’s senior economist and director of forecasting, writes on the association’s blog. A median-priced home is worth about $40,000 more than a year earlier. While home price increases add to home buyers’ costs, the impact of higher mortgage rates is much more—triple the impact on a monthly mortgage payment, Evangelou notes. An increase of just one percentage point in mortgage rates has the same effect on mortgage payments as if home prices rose by 13 percentage points, she writes.

Homes haven’t been this unaffordable since 1989, NAR reports. Rising mortgage rates have made home loans more expensive, adding to the cost of homeownership. The typical monthly mortgage payment was nearly $2,000 in June, up 54%—or $679—compared to a year ago. “The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market,” says Sam Khater, Freddie Mac’s chief economist. “Home sales continue to decline, prices are moderating, and consumer confidence is low. But amid waning demand, there are still potential home buyers on the sidelines waiting to jump back into the market.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 25:

• 30-year fixed-rate mortgages: averaged 5.55%, with an average 0.8 point, up from last week’s 5.13% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 4.85%, with an average 0.8 point, up from last week’s 4.55% average. A year ago, 15-year rates averaged 2.17%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.36%, with an average 0.4 point, dropping from last week’s 4.39% average. A year ago, 5-year ARMs averaged 2.42%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

©National Association of REALTORS®
Reprinted with permission

Survey: 94% of Sellers Don’t Disclose Property Defects

Home buyers who waive the inspection contingency must rely heavily on seller disclosures to be informed about any potential problems with the property. But more than 90% of buyers say they found at least one issue with their home after the transaction that the seller didn’t disclose, according to a new survey from Cinch Home Services, a home warranty company. Even more alarming is that 94% of sellers admit to selling their homes without disclosing a known issue.

Many buyers who skip the inspection contingency to sweeten their offer may later regret their decision. Make sure your clients understand the risks. Read more.

“Sellers failing to disclose home damage is against the law in most states. To ensure protection, prospective home buyers should ask for a completed seller’s disclosure in addition to conducting a thorough home inspection before closing on a new home,” says Cinch spokesperson Bella Valentini.

The top three problems buyers discovered after closing involved the electrical system, fixtures and plumbing. The survey shows the majority came from unpermitted repairs and upgrades, suggesting sellers should rethink doing some DIY jobs.

NAR: Contract Signings, Down Again, May Have Hit Bottom

Home buyers continue to recoil from higher mortgage rates and home prices, with pending home sales in July plummeting nearly 20% year over year, according to data from the National Association of REALTORS® released Wednesday. Though summertime is traditionally busy for the real estate market, contract signings across all regions of the country were down by double-digit percentages annually, the data shows. The West has seen the most market contraction, with pending home sales down 30%.

Pending home sales have fallen in eight of the last nine months as the market retreats from its pandemic highs. Still, NAR Chief Economist Lawrence Yun says a turnaround is likely. “In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” he says. “This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at the lower price points is hindering transaction activity.”

Affordability is taking a big hit, too, plunging in June to its lowest level since 1989, NAR reports. Rising mortgage rates have made home loans more expensive, adding to the cost of homeownership. The typical monthly mortgage payment was nearly $2,000 in June, up 54%—or $679—compared to just one year ago. “Home prices are still rising by double-digit percentages year over year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” Yun says. “With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”

©National Association of REALTORS®
Reprinted with permission

New-Home Sales Plummet as Rising Costs Sideline More Buyers

Just a year ago, homebuilders were overflowing with new contracts and, at times, raffling off their few remaining lots to wait-listed buyers. But since then, buyer traffic has slowed significantly as costs have soared. Rising mortgage rates and high inflation have crashed the homebuilding party.

New-home sales in July reached their slowest pace in six years, the Department of Housing and Urban Development and the Census Bureau reported Tuesday. New single-family home purchases declined 12.6% month over month and were down nearly 30% from a year earlier. “The disappointing sales pace mirrors an ongoing decline in builder sentiment as elevated mortgage rates and higher construction costs are pushing more consumers out of the market, particularly entry-level buyers,” says Jerry Konter, chairman of the National Association of Home Builders.

It’s yet another sign of a sudden plunge in the new-home sector. Housing starts for single-family construction projects dropped 10% year over year in July; mortgage applications for new-home purchases fell 16.1% the same month; and homebuilding sentiment dipped for the eighth straight month in August. The number of buyers backing out of new-home contracts also is growing: Homebuilder cancellation rates have more than doubled since April, according to John Burns Real Estate Consulting. In July, 17.6% of builder contracts fell through, compared to 8% in April.

Homebuilding contracts tend to have longer construction timelines that can stretch six months or more. And while buyers who signed a contract earlier this year may have been banking on locking in a low mortgage rate, those rates have nearly doubled since the beginning of 2022. Last week, the 30-year fixed-rate mortgage averaged 5.13%, and the rise in borrowing costs has added hundreds of dollars to monthly mortgage payments.

Still, new-home prices continue to stretch higher despite the recent pullback in sales. The median price for a new home in July climbed nearly 6% compared to the previous month, reaching $439,400. One culprit: Building materials have jumped 35.7% since January 2020. “The sharp drop in new-home sales is another clear indicator that housing is in a recession,” says Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president for forecasting and analysis. “The combination of higher prices and increased interest rates are generating a notable slowing of the housing market.”

Inventory for newly constructed single-family homes was at a 10.9-month supply in July, up a whopping 81.7% from a year earlier. However, of 464,000 units nationwide, only 45,000 are completed and ready to occupy; the remainder is still under construction, according to government data. Last week, Lawrence Yun, chief economist for the National Association of REALTORS®, signaled some optimism for the new-home market’s long-term outlook. “Homebuilders are naturally very cautious about rising unsold inventory during the construction phase,” Yun says. “But those completed homes are finding buyers within three months, which is relatively swift for the new-home market. Improving conditions within the supply chain for the delivery of items such as lumber and appliances will lessen overall uncertainty.”

©National Association of REALTORS®
Reprinted with permission

Homes Haven’t Been This Unaffordable Since 1989

The average monthly mortgage payment jumped 54% year over year in June while the median household income rose only 5.8%, according to the National Association of REALTORS®’ Housing Affordability Index. As home affordability weakened and the median home price shot to a record $413,800 in June, NAR’s index fell to its lowest reading in 33 years. “Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers,” NAR Chief Economist Lawrence Yun said recently.

Housing affordability “dramatically tumbled” in the second quarter amid rising mortgage rates and climbing home prices, NAR data shows. Monthly mortgage payments on a typical existing single-family home surged by nearly a third compared to the first quarter and by half compared to a year earlier. The 30-year fixed-rate mortgage has nearly doubled in that time. Although rates stabilized somewhat this month, they remain significantly higher than a year ago.

The average monthly mortgage payment rose to $1,944 in June from $1,265 a year earlier—a $679 difference, NAR notes. The annual mortgage payment as a percentage of income rose to 25.4%; most financial experts consider housing payments that exceed 25% of income to be unaffordable. “Monthly mortgage payments have soared compared to last year, and rising home prices are not helping affordability conditions,” Michael Hyman, a research data specialist at NAR, notes on the association’s Economists’ Outlook blog. “One good sign for the housing market is a welcome increase in the supply of inventory. Another is that rates recently have cooled, slowing the pace of growing monthly mortgage payments.”

Housing affordability posted double-digit declines in June compared to a year ago in all four major regions of the U.S. The Midwest was the most affordable region, with a median household income of $90,650 but a qualifying income of $68,496 needed to buy a median-priced home in the area.

On the other hand, the least affordable region continues to be the West, where the median family income was $98,498 but a qualifying income of $141,552 was needed to purchase a median-priced home. This marks the fourth consecutive month the Western region posted a reading on NAR’s affordability index below 100, which means a family earning the median income in the region can’t afford a median-priced home.

©National Association of REALTORS®
Reprinted with permission

Mortgage Rates Settle In the 5% Range

Mortgage rates appear to be settling in the 5% range after recent dramatic climbs that shocked home buyers. The 30-year fixed-rate mortgage averaged 5.13% this week, down slightly from its 5.22% average a week ago, Freddie Mac reports.

Mortgage rates peaked at 6% in early June, which prompted a pullback in housing demand. However, “home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers,” says Lawrence Yun, chief economist for the National Association of REALTORS®.

Inflation appears to have peaked, which has stopped the rapid increase in mortgage rates, says Sam Khater, Freddie Mac’s chief economist. “The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability,” Khater says. “As a result, over the rest of the year, purchase demand likely will continue to drag, supply will modestly increase and home price growth will decelerate.”

Total mortgage demand fell to its lowest level in 22 years last week, the Mortgage Bankers Association reports. A big contributor is falling refinance applications, as homeowners have less incentive to refinance due to higher rates. Still, mortgage applications to purchase a home are 18% lower than a year ago as more buyers step away due to higher mortgage rates and inflation, the MBA reports.

Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 18:

• 30-year fixed-rate mortgages: averaged 5.13%, with an average 0.8 point, falling from last week’s 5.22% average. Last year at this time, 30-year rates averaged 2.86%.
• 15-year fixed-rate mortgages: averaged 4.55%, with an average 0.7 point, dropping from last week’s 4.59% average. A year ago, 15-year rates averaged 2.16%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.39%, with an average 0.3 point, dropping from last week’s 4.43% average. A year ago, 5-year ARMs averaged 2.43%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS®
Reprinted with permission

Mortgage Rates Rocket Back Above 5%, But Market ‘Stabilizing’

Home buyers are having difficulty gauging opportunities to save on a property purchase as mortgage rates become more volatile. The average for the 30-year fixed-rate mortgage swung above 5% again this week, clocking in at 5.22%, Freddie Mac reports. Last week, the average for the 30-year fixed-rate mortgage was 4.99%. However, rates may not go much higher: Lawrence Yun, chief economist for the National Association of REALTORS®, says falling inflation in July may suggest mortgage rates are topping out.

“Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market,” says Sam Khater, Freddie Mac’s chief economist. “Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.”

The National Association of REALTORS® reported this week that housing affordability decreased precipitously in the second quarter, driven by a sharp rise in rates and double-digit home price increases. The average monthly mortgage payment on a typical existing single-family home (assuming a 20% down payment) climbed to $1,841, marking an increase of $444 compared to the first quarter.

Households are spending 24.3% of their income on mortgage payments, up from 16.9% a year ago, according to NAR data. First-time home buyers are getting hit hardest, typically spending about 37% of their household income on mortgage payments. Most financial experts consider households to be cost-burdened when they spend more than 25% of their income on housing.

Freddie Mac reports the following national averages with mortgage rates for the week ending on Aug. 11:

• 30-year fixed-rate mortgages: averaged 5.22%, with an average 0.7 point, rising from last week’s 4.99% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 4.59%, with an average 0.7 point, increasing from last week’s 4.26% average. A year ago, 15-year rates averaged 2.15%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.43%, with an average 0 point, increasing from last week’s 4.25% average. A year ago, 5-year ARMs averaged 2.44%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

©National Association of REALTORS®
Reprinted with permission