July brought relief to some homebuyers who rely on mortgages for their purchase, as the Fed dropped rates by half a point. The average 30-year-fixed reached 5.8% in June but has since fallen to 5.3% - still more than 2% more than it was at the beginning of the year.
This prompted more signs of demand, such as Google searches and requested tours. These signs, however, are of early demand and are not in any way implying that home purchases are going to rise along. In fact, Redfin reports that all signs of demand, both early and determined, are down from a year ago.
Higher rates brought to a yearly fall of 18% in mortgage applications, which means that potential buyers see no other choice but to give up on homeownership.
The decline in rates, which is probably a temperate measure to balance a weakened economy and high inflation, has made it possible for some regular buyers to afford a home. However, the volatility of demand paint the picture of the real estate market severely dependent on mortgage rates.
And while the home buyers back out of sales waiting for a lower rate, the average home price still rises - US average home price stands above $380K. Many experts expect a price correction, especially in severely overpriced regions, such as pandemic migration hotspots.
High mortgage rates don’t only affect the demand, but the supply, too. Potential sellers have little to no motivation to put their house on sale, knowing that it will spend more time on the market and that there might be price corrections. Redfin reports an average of 7.5% of sold homes had a price reduction – this number wasn’t as high since at least 2015.
The monthly mortgage payment for an average home price with today’s rates is around 42% higher than it was a year ago. People who locked in the loan in July will be paying approximately $2,300 in monthly payments for principal and interest alone. Not to mention escrow obligations and other homeowning expenses. That is almost a full thousand dollars more reduced from a monthly budget.
People are dabbing their feet in the real estate waters, but they are not ready to dive in. All because of the unattractive monthly payments and overpriced market, which is now losing competition.
Pending home sales are down 15% compared to 2021, and so are the new active listings (-6%). That means one thing – people are not eager to buy, but they are less and less eager to sell. A market correction’s arrival is undeniable, but the question is: how far will it go?
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