Although inflation remains stubbornly high in the United States, the aggressive interest hike policy initiated by the Federal Reserve in March continues to show its effect on the housing market.
The 30-year fixed-rate mortgage broke 7% for the first time since April 2002, more than twice as high as a year ago, according to Freddie Mac. The Fed is poised to announce another significant hike at its next meeting at the end of the month.
Without surprise, would-be homebuyers are reconsidering their purchase plans as the cost of borrowing money keeps climbing. The latest numbers from the National Association of Realtors (NAR), show that total existing-home sales decreased 1.5% from August, marking eight consecutive months of decline.
These numbers are likely to keep declining in the coming months as mortgage applications continue to drop, according to the Mortgage Banker Association (MBA.) “Mortgage applications are now into their fourth month of declines, dropping to the lowest level since 1997,” reports Joel Kan, MBA’s vice president and deputy chief economist. “The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market.”
Low Inventory Keeps Prices High
Even with the housing market slowing down, property prices remain high as the available inventory struggles to keep up with demand.
“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” says NAR chief economist Lawrence Yun. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.” The median existing-home price for all housing types in September was $384,000, an 8.4% increase on a year-over-year basis, marking the 127th consecutive month of annual increases.
The latest S&P CoreLogic Case-Shiller Home Price Index confirms this deceleration, reporting a 13.1% annual gain in August, down from 16.0% in the previous month. “As the Federal Reserve moves interest rates higher, mortgage financing becomes more expensive, and housing becomes less affordable. Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate,” says Craig J. Lazzara, Managing Director at S&P DJI.
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
