vitapix | E + | Getty Images
Mortgage rates rose again this week, making home buying even more expensive at the start of the important spring market.
With house prices skyrocketing, any increase in rates gets even more potential buyers out of the race, and yet, somehow, the housing market is more competitive than ever.
The average rate on 30-year fixed mortgages hit its last low of 2.75% in late January and has since risen steadily, according to the Mortgage News Daily. After a considerable change overnight, it is now at 3.45%.
“Since the beginning of February, the total damage has been almost 3/4 of one percent, making it one of the biggest changes in 6 weeks,” said Matthew Graham, director of operations for Mortgage News Daily.
“The buying market always resists these storms, and the extremely limited supply situation, together with the still voracious demand in many metropolitan areas, can keep the housing market surprisingly fluctuating. The big question is when the increase in rates will end up impacting prices. “
The rate is the same now as it was a year ago. The difference from the previous year, however, is that house prices are skyrocketing.
Prices are now more than 10% above this time in 2020, according to CoreLogic, and there appears to be no reduction in earnings. This is due to the record low supply of houses for sale.
Construction companies are not advancing as far as they expected, because they are facing higher costs with land, labor and materials. They also continue to experience delays in sending materials to workplaces due to Covid. The start of single-family housing was much lower than expected in February, and the number of undeveloped homes is increasing.
“There has been a 36% gain in the last 12 months of single-family homes allowed, but not started, because some projects have been interrupted due to the cost and availability of materials,” said Robert Dietz, chief economist at the National Association of Home Builders. “The construction of single-family homes is expected to expand in 2021, but at a slower pace, as housing affordability is challenged by higher mortgage rates and rising construction costs.”
New homes are already priced premium over existing homes, so rates are particularly important for this market.
For a new home with an estimated average price of $ 346,757 in 2021 and the recent 3-year 30-year fixed-rate mortgage rate, a quarter-point increase in the interest rate would cost about 1.3 million. households, according to a new calculation by the NAHB.
The crisis in the supply 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, which is a significant deterrent to change.
The number of newly listed homes for sale in the week ending March 13 was 24% lower year on year, according to realtor.com. The total number of homes for sale is now half what it was a year ago.
While this situation makes things more difficult for buyers, it also shows that buyer demand has not fallen much, even in today’s higher rate environment. If buyers had fallen, the supply would have been increasing.
Buyers are, in fact, “flooding the housing market earlier this year, eager to find a home of their own,” according to Danielle Hale, chief economist at realtor.com. On average, homes are selling seven days faster than last year.
The demand for housing increased last year. The pandemic created an emotional need to nest, not to mention the practical need for more space, given the work environment and school at home. Even with the increase in vaccinations and more people returning to offices and schools, home buyers are still not only in place, but are increasingly competitive.
Just over a third of the homes sold in February cost more than the original price. This is the largest share ever recorded, according to Redfin, a real estate broker.
“This is the strongest sales market since at least 2006,” said Daryl Fairweather, chief economist at Redfin. “Buyers outnumber sellers by such a large margin that many homeowners stand still because they know how difficult it would be to find a place to move.”