High mortgage rates continue to cramp the nation’s housing supply and keep prices high

High mortgage interest rates are not helping lower the asking prices of homes in most parts of the country despite the slowdown in the housing market, leaving homeowners flush with equity and first-time buyers stuck with high prices and limited options with little relief in sight.

More than 80% of U.S. metro markets reported home price gains during the third quarter of 2023, which spanned from July to September, the National Association of Realtors said Thursday. 11% of those markets achieved double-digit gains in value compared to the previous year, more than double the rate recorded in the second quarter.

This data represents another snapshot of the U.S. housing market, which has been defined by a theme of unaffordability and rising costs for buyers for much of the past three years. Low interest rates during the post-pandemic recovery helped absorb some of the cost of the spike in asking prices, but interest rates have risen steadily as the Fed tries to crack down on inflation.

The increase in home values ​​comes despite a slowdown in the housing market and rising interest rates, which ranged from 6.81% to 7.31% in the third quarter. Interest rates have recently dropped after reaching nearly 8%, with the average rate for a 30-year fixed-rate mortgage at 7.5% for the week ending November 9, according to Freddie Mac.

A slight decline in interest rates is good news for buyers in a market that doesn’t have much to get excited about.

“Lower mortgage interest rates are unequivocally a good thing for home shoppers because it restores buyers’ purchasing power, but we likely may not see this decline impact home sales immediately unless consumers believe this is just a short blip.” range before a renewed rally. “Interest rates are higher relative to rates,” said Danielle Hale, chief economist at Realtor.com. “Between the planning, research, and eventually moving from an accepted offer to the closing table, it could be months before we see the impact of lower rates.” on home sales.”

The rise in home values ​​during the third quarter also erased losses in the national average since the second quarter, when the median price fell 2.4%.

The national median price for an existing single-family home was $406,900, which makes a mortgage very expensive when combined with high interest rates that take many buyers out of the market and make it more difficult for first-time homebuyers who don’t have the cash equity to get a home. .

“For first-time buyers in particular, the biggest hurdle to ownership is often raising the money for a down payment,” Hill said.

The monthly mortgage payment on a typical existing single-family home with a 20% down payment was $2,192, a 7% increase from the second quarter and a 19.2% increase compared to last year.

The housing market is headed for one of its worst years in decades as activity has slowed due to rising prices and interest rates, but that has not brought much widespread relief to potential buyers.

“The continuing shortage of available homes on the market will make the dream of homeownership increasingly difficult for younger adults unless housing supply is significantly enhanced,” said Lawrence Yun, chief economist at NAR.

The lack of existing homes listed presents an opportunity for housebuilders to step in and fill the void, but rising interest rates and labor costs have made that difficult. There is also a long-term housing shortage in the United States due to several factors such as strict local zoning laws and a lack of long-term investment.

Restoring affordability to the nation’s housing situation will be impossible without adding more homes to the supply.

“The combination of limited inventory driving up housing prices and rising mortgage rates has really undermined affordability in the last few years. Going forward, I think all three factors will play a role in restoring affordability,” Hill said. “I think we will see construction start to ‘catch up’, creating more homes and with them a better balance between supply and demand. “I think we will see a slight decline in house prices over time, which will play a role as well.”

(tags for translation)Freddie Mac

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