Mortgage rates continued to rise above the 7% threshold this week, putting affordability-conscious buyers on the back burner.
The 30-year fixed-rate mortgage rate rose to 7.17% Thursday from 7.1% the previous week, according to Freddie Mac. Interest rates rose above 7% last week for the first time this year after a government report showed inflation remained higher than expected.
A separate measure that tracks daily interest rate changes revealed even larger fluctuations. The daily interest rate on the popular 30-year fixed loan was 7.39% as of Wednesday, down slightly from 7.50% just a week ago, but still significantly up from just 7% at the beginning of the month, according to Mortgage News Daily. did.
The rise in interest rates was a bittersweet moment for prospective buyers who had hoped to enter the market in the spring, forcing some first-time and repeat buyers back to the sidelines.
Realtor.com economist Jiayu Xu said whether we can expect interest rates to stabilize depends on inflation.
“Unfortunately, the increase in mortgage rates has occurred at a time when the housing market is typically busy, which may give prospective homebuyers pause when considering their purchase decisions,” Xu said. “Despite rising costs due to rising mortgage rates, it may also suggest that the market is less competitive and opportunities may exist for some homebuyers. .”
Buyers retreat as interest rates soar
Demand for mortgages slowed last week as mortgage rates hit their highest levels since late 2023.
The number of home purchase applications fell 1% in the week ending April 19, according to the Mortgage Bankers Association's (MBA) Weekly Application Survey. Overall, the number of applications decreased by 15% compared to his year ago.
Buyers turned to government-backed loans and adjustable-rate mortgages (ARMs), which have slightly lower interest rates.
MBA noted that ARM's share of applications increased by nearly 8%, consistent with an increase in fees as buyers look for some form of relief. His FHA share of applications also recorded a slight increase, increasing by approximately 13% for the week ending April 19th.
But homebuyers weren't the only ones held back by rising mortgage rates. The number of refinance applications fell 6% last week as homeowners lost hope for interest rate cuts, according to an MBA survey.
While mortgage interest rates are partly to blame for the slump in demand, a large factor is the limited supply of housing on the market. Demand continues to exceed supply, preventing housing prices from falling.
It also gives a lock-in effect.
“Higher mortgage rates have taken the wind out of the mortgage market,” said CEO and MBA President Bob Bruksmit. “In addition to declining affordability conditions, the lock-in effect has meant that many homeowners are reluctant to sell their homes to purchase new homes at higher prices and mortgage rates inventory levels remain subdued.
Bright signs in new construction
New home sales in March exceeded expectations, marking the biggest increase since December 2022, while existing home inventories hovered near a 30-year low.
New single-family home sales rose nearly 9% at a seasonally adjusted annual rate to 693,000 units in March, according to data released this week by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
The pace of new home sales rose more than 8% last month from a year ago, but experts predict the pace may slow.
Still, new homes are providing a cushion for buyers who are facing a shortage of inventory on the existing home side.
The inventory of new single-family homes in March was 477,000, an increase of nearly 3% from February. This is equivalent to approximately eight months' supply at the current pace of construction. As for existing single-family homes, NAR data shows just over three months of supply in March, indicating the market will remain balanced for at least five to six months.
Overall, new home inventory increased at an annual rate of more than 10% in March.
Sam Cater, Freddie Mac's chief economist, said recent growth in new home sales shows buyers are agreeing to higher interest rates.
“Despite interest rates rising more than 0.5% since the first week of this year, purchase demand remains stable,” Carter said. “Many homebuyers are making adjustments as interest rates remain high for an extended period of time.”
Gabriela Cruz Martinez I'm a personal finance and housing reporter for Yahoo Finance. Follow her on X @__Gabriela Cruz.
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