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Mortgage rates rose again this week, making home buying even more expensive at the start of the all-important spring market.
With house prices skyrocketing, any interest rate hike puts even more potential buyers out of the running, and yet the housing market is somehow more competitive than ever.
The average interest rate on the 30-year fixed mortgage hit its last low of 2.75% in late January and has risen quite steadily since then, according to Mortgage News Daily. After a significant overnight move, it now stands at 3.45%.
“As of the beginning of February, the total damage has been nearly 3/4 of a percent, making it one of the biggest steps ever taken in 6 weeks,” said Matthew Graham, chief operating officer at Mortgage News Daily.
“The owner-occupied market is always weathering these storms, and the ultra-tight supply situation coupled with still-hungry demand in many urban areas can keep the housing market surprisingly vibrant. The bigger question is when rising rates will eventually affect prices.”
The rate is the same now as it was a year ago. The difference with a year ago, however, is that house prices are rising enormously.
According to CoreLogic, prices are now up more than 10% from this time in 2020, and gains don’t seem to have stopped. This is due to the record low supply of owner-occupied homes.
Homebuilders are not doing as much as hoped because they face higher costs for land, labor and materials. They also continue to experience delays in getting materials to job boards, due to Covid. The start of single-family homes was much lower than expected in February and the backlog of unbuilt homes is increasing.
“There has been a 36% increase in single-family homes that are allowed but not started in the last 12 months as some projects have been interrupted due to cost and availability of materials,” said Robert Dietz, chief economist of the National Association of Home Builders. “Single-family construction is expected to expand in 2021, but at a slower pace as housing affordability is being tested by higher mortgage rates and rising construction costs.”
New homes already have a higher price than existing homes, so rates are especially important for that market.
For a new home with an estimated average price of $ 346,757 in 2021 and the recent 30-year mortgage interest rate with a fixed rate of 3%, a quarter of a percentage point increase in interest would cost about 1.3 million households according to a new calculation. . by the NAHB.
The supply shortage of existing homes is only exacerbated by higher mortgage rates. Homeowners who sell will likely have to buy their next home at a higher interest rate, so that’s a major deterrent to moving.
According to realtor.com, the number of new homes for sale for the week ending March 13 was down 24% on an annual basis. The total number of homes for sale is now half of a year ago.
While this situation makes things more difficult for buyers, it also shows that buyer demand has not decreased much, even in the current higher-rate environment. If buyers had relapsed, the supply would increase.
In fact, buyers have “flooded the housing market early this year, eager to find a home of their own,” said Danielle Hale, realtor.com chief economist. Homes sell on average seven days faster than last year.
Demand for housing was brought forward last year. The pandemic created an emotional need to nest, not to mention a practical need for more space, given the work and school-far-from-home environment. Even as vaccinations increase and more people return to offices and schools, homebuyers are still not only active but also increasingly competitive.
Just over a third of the homes sold in February went for more than the original asking price. According to Redfin, a real estate brokerage, that’s the largest share ever.
“This is at least the strongest seller market since 2006,” said Daryl Fairweather, Redfin’s chief economist. “Buyers outnumber sellers by such a huge margin that many homeowners are stuck knowing how difficult it would be to find a place to live.”