Could the ever-rising mortgage rates be the reason why sales are declining in the housing market and real estate in general?
Recently, there has been a sharp fall in sales and listings in the housing market. In the meantime, existing-home sales declined for the eighth consecutive month in September, falling 1.5% month-over-month to an adjusted annual rate of 4.71 million, according to data published by the National Association of Realtors. So far, sales are down almost 24% compared with last year’s statistics.
Lawrence Yun, NAR Chief Economist, states, “The housing sector continues to undergo an adjustment due to the continuous rise in interest rates.” “Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales.”
Why Are Real Estate House Prices Still High?
Many Americans consciously monitor the market; they wouldn’t want to lose the low mortgage rate they secured during the pandemic, says Redfin Economics Research Lead Chen Zhao. Notwithstanding, demand keeps decreasing due to surging mortgage rates – propped up by the inflation situation, and not many people are putting up their homes for sale.
Mortgage rates are increasing as the Federal Reserve attempt to clamp down on inflation by raising interest rates. Currently, mortgage rates reached a 20-year high, with the average rate for a 30-year fixed-rate mortgage scooting up to 6.94% as of Oct. 20, in contrast to the 3.09% rate from a year ago, according to the Primary Mortgage Market Survey by Freddie Mac. Also, according to the Mortgage Bankers Association, mortgage-purchase applications fell to their lowest level in 25 years.
Housing Market vs. Mortgage Rates
In a recent analysis by Redfin, homebuyers have lost 29% of their purchasing power as the average 30-year-fixed mortgage rate scooted from 2.65% at the start of 2021 to 6.6% recently. Apparently, this led to the nationwide call-off of about 60,000 home purchase agreements in September, which equals 17% of contracted homes – this is the highest share record since March 2020.
Also, according to the National Association of Home Builders, home builder confidence fell for the 10th straight month in October, marking the lowest level since May 2020. Going forward from this point, Abbey Omodunbi, senior economist at PNC Financial Services Group, says that “with rising interest rates, elevated inflation, and worsening housing affordability, the housing market slump will likely continue well into 2023.”
However, even with the turn out of events, experts still believe that the housing crash is not happening – as experienced during the “2007-09 global financial crisis in terms of magnitude.” The market is expected to bounce back from the second quarter of 2023.
News source: USA Today
