Mortgage Rates Abate
The average 30-year fixed-rate mortgage came down from its near 7% highs last week to about 6.4%. Still, it remains about 2% higher now than a year ago.
The recent decline has sparked renewed interest from prospective buyers. But even as inflation slows, mortgage rates are likely to remain a major pain point for the foreseeable future.
Meanwhile, another problem has arisen to challenge homebuyers.
Despite increasing demand from homebuyers and historically high valuations, inventory has become a real concern in the housing market. Homeowners fortunate enough to have locked in low mortgage rates before the steep rise now appear happy to hunker down, leaving far less supply to meet buyer demand.
This problem is particularly pronounced among Americans. The US is the only country to predominantly favor the 30-year fixed-rate mortgage model, meaning rising rates have an outsized impact on when US homeowners sell or buy.
The result is a thin inventory of new homes. Because of this, the homes that are listed sell faster, creating a more competitive market. In fact, because there are so few homes to choose from, homebuying speed is actually accelerating, even with the elevated rates.
Normally, higher rates help to drive down prices to compensate for falling demand related to higher financing costs. However, the lack of inventory is creating an unpleasant paradox for prospective homebuyers.
As rates moderate, demand will increase, even if mortgages remain high overall. But as long as homeowners feel pressure to hold onto their lower financing costs, the supply side of the housing market will be limited. This means that, for now, homeowners can expect more interest with each new listing, while homebuyers can expect more offers to compete with.
So, if you’re looking for your dream home, even if you haven’t found it listed yet, use this time to clarify what you’re looking for, determine how much you can spend, and get a preapproval letter from your lender. It’s increasingly important to know exactly what you’re looking for — and to move quickly if you find it.
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