Mortgage rates rose to their highest level in 23 years this week, dealing another blow to the housing market.
The interest rate on a 30-year fixed mortgage rose to 7.31% from 7.19% the previous week, according to Freddie Mac. This is the highest rate since mid-December 2000, when it averaged 7.42%.
Interest rates followed 10-year Treasury yields, which rose to their highest point since 2007 on Wednesday as concerns grew about a potential U.S. government shutdown. The development also comes a week after the Federal Reserve suggested it would keep its benchmark interest rate high for longer.
Read more: Mortgage rates at their highest level in over 20 years: Is 2023 a good time to buy a home?
For homebuyers, the rise in interest rates once again eroded their purchasing power and provided a good reason to stick with side policy. Meanwhile, those still in the hunt may face higher interest rates in the future.
“Do high interest rates cause a significant impact on buyers? The answer is yes,” said Jason Sharon, owner Home loan companyYahoo Finance said. “Will it kill the housing market? Absolutely not. But it puts on the brakes hard.”
“Fewer buyers in the market”
High rates continued to impact purchasing demand.
Mortgage purchase application volume fell 2% from the previous week on a seasonally adjusted basis Mortgage Bankers Association (MBA) survey found for the week ending September 22. Overall, purchase demand was 27% lower than the same week last year.
“Nowadays, there are fewer buyers actively searching for homes, which results in less competition,” said Beatrice De Jong, a real estate broker at the company. Beverly Hills real estateYahoo Finance said.
In fact, the stock is growing because so many buyers have left the market, Mike Simonsen, CEO of Altos Research, wrote in his weekly report. analysis, which is unusual during this time of year. New listings “continue to show 9-10% fewer homes for sale each week than last year,” he wrote.
Read more: How to buy a house in 2023
This is because many homeowners are reluctant to sell their homes and lose out on the current mortgage rate, which is much lower than the going rate.
“Eighty percent of homeowners with a mortgage have a mortgage rate of less than 5%,” Orvi Devungi, chief economist at Zillow, told Yahoo Finance. “These homeowners have little incentive to sell, trading their lower monthly housing costs for the much higher housing costs they would face as a buyer in today’s mortgage rate environment.”
This supply and demand dynamic is evident in the latest sales data. New home sales fell in August. Pending home sales — an indicator of future closed sales — fell during the month, while closed sales of previously owned homes fell to a seven-month low.
Currently, the inventory scenario is helping to support prices.
The median resale home price in August was $407,100, the highest price for August and the fourth-highest ever, according to the National Association of Realtors. Overall, home prices hit a new record in July after rising month-on-month for six straight months.
But the market could become very different if interest rates continue to rise.
A housing economist warned last week that mortgage rates could reach 8% after Federal Reserve Chairman Jerome Powell suggested the high-rate environment is here to stay.
Read more: What a pause in federal interest rate hikes means for mortgage and loan rates
Already, homebuilders, which until recently enjoyed a boost in sales as buyers emerge from a dismal resale market, are beginning to ramp up incentives to entice buyers. In September, 32% of builders reduced their home prices, NAHB found, compared to 25% the previous month. This is the largest share of builders cutting prices since December 2022 (35%).
A separate survey by Altos Research found that 37% of the market had cut prices for the week ending September 25, more than in any recent year except last year at this time.
“A normal balanced market would see price reductions of about 30-35% of homes for sale with price reductions,” Simonsen wrote. “With it approaching 40%, this is a clear indication that buyers are making lower offers.”
Gabriela Cruz Martinez is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__GabrielaCruz.
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