Mortgage Rates Rise Modestly to 5.81%

Mortgage rates inched closer to 6% this week. The 30-year fixed-rate mortgage averaged 5.81%, up modestly from 5.78% last week, according to Freddie Mac. Borrowing costs are mounting higher and higher for potential home buyers, who now find themselves squeezed both financially and by low inventory.

“Since the beginning of the year, home buying has cost about $800 more every month,” Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes on the Economists’ Outlook blog. “These higher mortgage rates hurt affordability, and middle-income home buyers can afford to buy fewer homes. Even though inventory has increased 13% since January, not all home buyers can afford to buy these additional homes. In fact, in order to be able to afford those homes, it appears that buyers need to earn more than $150,000 per year.”

Still, rising rates are tamping down previously frenzied demand, which may be a positive thing for the market. “The combination of rising rates and high home prices is the likely driver of recent declines in existing-home sales,” says Sam Khater, Freddie Mac’s chief economist. “However, in reality, many potential home buyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity.”

Freddie Mac reports the following national averages for mortgage rates for the week ending June 23:

• 30-year fixed-rate mortgages: averaged 5.81% with an average 0.8 point, up from last week’s 5.78%. A year ago, the 30-year fixed-rate mortgage averaged 3.02%.
• 15-year fixed-rate mortgages: averaged 4.92% with an average 0.9 point, up from last week’s 4.81%. A year ago, the 15-year fixed-rate mortgage averaged 2.34%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.41% with an average 0.3 point, up from last week’s 4.33%. A year ago, the five-year ARM averaged 2.53%.

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

Affordability Crisis for Lawmakers

Leaders from the National Association of REALTORS® made the case to members of Congress and their staff on Tuesday that housing affordability is rapidly deteriorating and action is needed to keep homes financially accessible to buyers. In an exclusive virtual briefing, NAR President Leslie Rouda Smith told congressional leaders that for too many Americans the cost of buying a home remains a barrier to property ownership—a primary pathway to generational wealth-building.

“Enabling more households to achieve and maintain homeownership is crucial to narrowing racial wealth gaps,” Rouda Smith said. “But with rising mortgage rates and a persistent shortage of affordable homes, homeownership opportunities are limited for many middle-class, first-time and first-generation home buyers.”

Three Forces Driving the Housing Market

Jessica Lautz, NAR’s vice president of demographics and behavioral insights, said at the briefing that inflation, rising mortgage rates and inventory are driving changes in the housing market. “For a $300,000 mortgage—one that the typical first-time home buyer would probably feel pretty comfortable entering into—we know that their monthly payment has jumped to $1,800 from $1,300 just at the beginning of the year. That is quite a jump,” Lautz said. “It means there are a lot of people who are going to say, ‘I cannot afford to enter the housing market.’”

Watch the webinar recording and download Lautz’ presentation at NAR’s National Homeownership Month page.

NAR data, which lawmakers in Washington rely on as they craft policy and propose new housing legislation, shows that inventory remains stubbornly low. “Even with this rise in mortgage rates, even with fewer buyers coming into the market, we still have seen nearly a 15% year-over-year home price increase. We are seeing this in nearly every major city across the country,” Lautz said. “We are seeing this in places where we haven’t seen it before. We are talking about 123 straight months of year-over-year home price gains.”

Lautz said she expects that as the market cools, home sales will return to pre-pandemic levels. But lingering supply issues mean home prices will remain elevated.

NAR’s landmark 2021 report, “Housing Is Critical Infrastructure,” showed an underbuilding gap of 5.5 million units—a gap so large it would take more than a decade to correct. NAR advocates an all-of-the-above approach to closing the supply gap, including zoning reform, money for new construction, increased labor, and tax incentives to convert unused commercial space to residential.

Racial Homeownership Divide Worsens During Pandemic

The briefing also gave Capitol Hill policymakers a snapshot of how the racial homeownership divide grew deeper during the pandemic. Lautz presented NAR data showing that the homeownership rate for White Americans today is more than 72% while it’s just 43% for Black Americans. “That gap is as wide today as when the Fair Housing Act began back in 1968,” Lautz said.

Student loan debt is especially burdensome to Black home buyers, according to NAR’s analysis. “Forty-one percent of [recent] Black home buyers had student loan debt; that is higher than any other race,” Lautz said. “And if you are a first-time home buyer, you don’t have equity from that previous home.” NAR data shows that 38% of recent White home buyers were able use past home equity to help finance a down payment. In comparison, only 21% of Blacks, 25% of Hispanics, and 16% of Asians could do so.

Millennials Now Command the Housing Market

Millennials, now the biggest generation in America, are “impacting everything we do,” Lautz told lawmakers. “And it is one of the reasons why we are missing 5.5 million units in the U.S.”

About 32 million young adults are nearing their peak homebuying age. They’re spending less on transportation than past generations did at their age, but they’re spending more on housing and education. “Sixty percent of millennials who are not homeowners today are saying that student loan debt is one of the biggest hurdles delaying them from purchasing a home,” Lautz said.

The other significant shift in the data is a drop in U.S. birth rates. The segment of home buyers with a child under the age of 18 has dropped from a share of 58% in 1985 to just 31% today. “We are absolutely seeing that reflection in the data on home buyers,” Lautz said. “It is going to shift a few factors: You need a smaller home if you don’t have a growing family, and the other big factor is where that home is.” Households without kids may cast a wider net in their home search, seeking more affordable options, rather than limiting their search based on school districts. 

©National Association of REALTORS®
Reprinted with permission

Speak Up About VA Loans

Many service members know little about the benefits of VA mortgages or may even hold negative views about them, according to a Spotlight on VA Loans report commissioned by Navy Federal Credit Union and Operation Homefront. The survey was based on responses from about 1,000 active-duty service members and veterans nationwide.

Nearly half of active-duty respondents believe VA loans have higher interest rates than conventional loans—which they don’t, the survey notes. Seventeen percent of veterans and 45% of active-duty soldiers believe a down payment of more than 20% is necessary for a VA loan. In reality, VA loans offer vets and military service members a chance to buy with 0% down.

Bob Goldberg, CEO of the National Association of REALTORS®, pinned a recent editorial at The American Genius that documents how VA loans are helping vets achieve homeownership quicker than they imagined. He shared the story of how a vet who had been honorably discharged in 2006 after knee and back injuries learned of options that sped up his homeownership timeline after his agent connected him to a lender specializing in helping military home buyers. The vet learned that he qualified for the VA Home Loan Guaranty Program, which offers a 0% down payment, and that it would cover high housing costs in his area of Washington, D.C. He also learned that his VA loan would not require private mortgage insurance because of his service-related disability. He and his wife were able to purchase a home much sooner than they ever thought.

Real estate pros can play a big role in helping military members and veterans achieve homeownership by sharing more information about the VA Home Loan Guaranty Program and helping to dispel common myths. To help with that, NAR and the Department of Veterans Affairs released a joint two-part video series earlier this year that examines misconceptions about the program as well as its advantages. The videos help guide REALTORS® and their clients through the process.

The VA Home Loan Guaranty Program has helped some 25 million veterans purchase and maintain homes since it was launched during World War II.

NAR has served as a strong advocate for VA loans. At the end of 2021, NAR President Leslie Rouda Smith testified before Congress about the importance of strengthening the VA Home Loan Guaranty Program, including citing benefits for borrowers and the program’s role in closing the racial homeownership gap. She noted that VA loan delinquency rates tend to be lower than FHA loans and comparable to conventional loans.

“The National Association of REALTORS® has worked from our position as America’s largest trade association to help ensure the VA Home Loan Guaranty Program remains an accessible resource for veterans looking to purchase a home as a benefit for their service,” Goldberg notes in the article at The American Genius.

REALTORS® wanting to expand their work with military members and vets have pursued a Military Relocation Professional (MRP) certification. The program educates NAR members on helping military home buyers, including connecting them to financing resources and learning how vets can take advantage of the benefits available to them.

“As we honor their immense sacrifices, we also look for ways to better recognize and repay the men and women who have survived the horrors of combat and returned home to live out the ideals they risked everything to protect,” Goldberg writes for The American Genius. “Because when they do return, access to a safe, comfortable home should never be in question.”

©National Association of REALTORS®
Reprinted with permission

Home Sales Retreat to Pre-Pandemic Levels

Home sales are falling from their pandemic-fueled highs as home buyers tighten up their budgets. “Home sales have essentially returned to the levels seen in 2019—prior to the pandemic—after two years of gangbuster performance,” says Lawrence Yun, chief economist for the National Association of REALTORS®. Movement in both single-family and condo sales are nearly equal, Yun adds, “possibly implying that the preference toward suburban living over city life that had been present over the past two years is fading, with a return to pre-pandemic conditions.”

Total existing-home sales—completed transactions for single-family homes, townhomes, condos, and co-ops—dropped 3.4% month over month in May, reaching a seasonally adjusted annual rate of 5.41 million, according to NAR’s latest home sales report. Existing-home sales are down 8.6% compared to a year ago.

Fed’s Aggressive Rate Hike May Influence ‘Shrinking Buyer Pool’

“Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,” Yun says. “Nonetheless, homes priced appropriately are selling quickly, and inventory levels still need to rise substantially—almost double—to cool home price appreciation and provide more options for home buyers.”

Indeed, despite the decreases last month in home sales, prices remain strong. The median existing-home price exceeded $400,000 for the first time on record, reaching $407,600—up 14.8% from a median of $355,000 a year ago, NAR reports. Here are some additional key housing indicators from NAR’s May existing-home sales report.

• Days on the market: Eighty-eight percent of homes sold were on the market for less than a month. Properties typically remained on the market for 16 days, down from 17 days in April.
• Housing inventories: Total housing inventory at the end of May was 1.16 million units, up 12.6% from April but down 4.1% from a year ago. Unsold inventory nationally sits at a 2.6-month supply at the current sales pace.
• First-time buyers: First-time buyers accounted for more than a quarter—27%—of sales, down from 31% a year ago. Higher mortgage rates and home prices continue to press on first-time buyers’ budgets.
• All-cash sales: All-cash transactions accounted for a quarter of sales, up from 23% a year ago. Individual investors and second-home buyers, who tend to make up the bulk of cash sales, comprised 16% of transactions, down slightly from 17% a year earlier.
• Distressed sales: Foreclosures and short sales accounted for less than 1% of sales.

Regional Snapshot

Here’s a closer look at how existing-home sales fared across the country in May:

• Northeast: Rose 1.5%, reaching an annual rate of 680,000. However, sales were down 9.2% from a year ago. Median price: $409,700, a 6.7% uptick from one year ago.
• Midwest: Fell 5.3% and reached an annual rate of 1.24 million. Sales were down 7.5% compared to a year earlier. Median price: $294,500, up 9.5% from a year ago.
• South: Dropped 2.8% in May and reached an annual rate of 2.41 million—down 8.4% from a year ago. Median price: $375,000, a 20.6% increase compared to a year ago.
• West: Fell 5.3% and reached an annual rate of 1.08 million, marking a 10% decline from a year earlier. Median price: $633,800, an increase of 13.3% from a year ago.

©National Association of REALTORS®
Reprinted with permission