Mortgage Rates Go Up—Right as the Housing Market Melts Down

As temperatures rise across the country, the housing market is also experiencing its own crisis. Mortgage rates have soared to 6.81% for a 30-year fixed-rate loan, surpassing last week's average rate of 6.78%.

Additionally, the steady decline in median home prices has come to a halt. Prices have now reached the same levels as they were a year ago, eliminating any hope of relief for homebuyers.

What is causing these high prices, and is there any respite in sight for buyers? In our latest installment of "How's the Housing Market This Week?" we will delve into the implications of this latest data for both homebuyers and sellers.

The recent hike in interest rates by the Federal Reserve has contributed to the surge in mortgage rates. Since March 2022, when the Federal Reserve began raising rates to combat inflation, mortgage rates have been steadily climbing. Although mortgage rates are not directly tied to the Fed's rates, they have been rising in tandem. The latest interest rate hike suggests that mortgage rates will remain high until the Fed stops raising rates, which may not happen until the end of the year.

While falling home prices had previously offset high mortgage rates, this silver lining has disappeared. After six weeks of declining prices, median home listing prices have stagnated, showing no change compared to the previous year. The median asking price for an average home remains at $445,000. The main reason for these stubbornly high prices is sellers with strong bargaining power, taking advantage of the limited supply and cost-sensitive buyers. The hoped-for price relief has not materialized, leaving prospective homebuyers frustrated.

However, there are some regions, particularly in the Northeast and Midwest, where buyers can find more affordable options. These areas offer some relief in terms of affordability.

One of the major challenges in the housing market is the lack of available homes. New listings have decreased by 18% compared to the previous year, continuing a 55-week trend. Additionally, active inventory, which includes both new and old listings, has dropped by 8% compared to last year. Although the decline in new listings may slow down in the future, buyers should not expect a flood of new homes to choose from. Existing homeowners are choosing to sell in lower numbers, leading to low inventory. However, new construction projects may provide some options for buyers.

With high prices and mortgage rates, homes are staying on the market for longer periods. For 53 consecutive weeks, homes have taken longer to sell compared to the previous year. The high costs associated with buying a home are discouraging some buyers, affecting overall demand. However, there is a slight improvement in the pace of home sales, with homes spending fewer days on the market compared to two weeks ago. As we move past the 2022 housing slowdown, this trend is likely to continue, and homes may even sell faster than they did a year ago by the fall. This signifies that the market is entering an intermediate phase, where homes stay on the market for fewer days than pre-pandemic but longer than during the peak of the real estate frenzy.