Some reports are signalizing a market cool-off, particularly in urban areas. Namely, the supply of condos and townhouses rose compared to last spring, with many interested buyers looking for somewhat affordable housing and a place near the office. Additionally, the mortgage rate has shrunk two weeks in a row to a 4.8% on a 30-years-fixed.
Single-family homes are still the most in-demand, but with prices soaring non-stop, aspiring property owners had to turn to other types of housing. Investors are turning to condos as more people turn to rent due to the lack of assets. However, a drop in the mortgage rate may enable some people to afford a place after all.
Mortgage rates have fallen for two consecutive weeks in response to a growing fear of recession. Even though it was expected to climb along with the Fed’s interest rates, it yielded 5.25% to 5.1% in three weeks. This volatility of rates is happening because there are two economic problems that could be solved with contrasting solutions.
First, the rates started climbing as a contra-measure to a record inflation rate, which increased the consumer price index to more than 8% in just a year. Subsequently, the rising rates are compromising the US economy's upclimb, so the decline is necessary to keep up the balance.
The Fed’s reduction of interest rates does not directly affect fixed-rate mortgages, as they follow the 10-year Treasury yields. However, it is rippling through the economy and slows down the consumers’ spending on durable goods. Professionals are estimating at least a short-termed pause in mortgage rate increases, although there are those who think that the rate might climb to 6%.
As a result of increased homeowning costs for detached single-family homes, condos and townhouses are in high demand. This year’s first quarter saw the highest jump in the building of new condos since 2008. The same goes for townhouses, whose building starts climbed 16% compared to the same period last year.
This rise is not without a cause. People in search of homeowning are looking for more affordable housing, and condos are still somewhat less expensive than single-family homes. With a median price shy of $340,000, condos are attractive to small households who can’t afford a median single-family home price of $400,000.
Moreover, as offices open for work, people want to live closer to them, so they seek a place downtown. As we know, many people moved to urban villages and suburbs when the pandemic struck, for fear of contact and disease. In the past few months, the pandemic slowed down and life is getting back to normal. Everything is open, events are organized, and people crave human contact after years of quarantine.
Investors also recognized this trend, and are now transferring from single-family suburb homes to downtown condominiums. The construction of condos is on the rise, according to the National Association of Homebuilders.
The construction of attached single-family homes and townhouses is also on the rise; in fact, the percentage of them in the grand total of all single-family home construction is 13.4%. To explain the importance of this number, we should mention that it was higher only in 2008 when townhouse constructions took up 14.6% of all single-family home builds.
Is it safe to assume that summer will bring a more forgiving market toward first-time buyers? Unfortunately, most likely not. The slow-down is probably going to reduce sales and prices slowly but surely, and the mortgage rates will stay volatile in the next few months - rising and dropping according to the fear of recession and the inflation rate.
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