The housing market is on the fritz – again.
Mortgage rates rose for the fifth consecutive week, sending the 30-year fixed mortgage rate to 6.73%, according to Freddie Mac’s latest data, released March 9. That’s up 0.08% from the previous week and 2.8% compared to this time last year.
At the same time, other parts of the economy continue to run red hot.
The United States added 311,000 jobs in February – higher than expected. And in the 12-month period that ended in January, prices rose 6.4%, indicating that while inflation is slowing, it’s still sky high and it’s not coming back to earth as fast as experts were hoping.
What does all of this mean for homeowners, buyers and sellers? Here’s what you need to know.
Rising rates
Mortgage rates have climbed for the past five weeks.
For most of 2020 and 2021, rates held steady somewhere between 2% and 3%, Freddie Mac’s data shows. In 2022, rates began to climb again, peaking in November at 7.08%.
Since November, rates trended down until February, when they began to climb again.
“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy,” Freddie Mac’s chief economist, Sam Khater, said in the March 9 release. “Overall, consumers are spending in sectors that are not interest rate sensitive, such as travel and dining out. However, rate-sensitive sectors, such as housing, continue to be adversely affected.”
But what’s driving rates?
Inflation, Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors, told McClatchy News.
“When inflation was coming down, when it was slowing down more than the expectations in December in January, we saw mortgage rates coming down,” Evangelou said. “However, once we got the information in February that inflation is easing, but not at the rate that we want to see, what we expect, then we saw mortgage rates coming up.”
As inflation pressure has persisted and the economy has continued to grow, the Federal Reserve has taken a more aggressive stance to try to cool economic growth by raising interest rates. This has also driven mortgage rates up, according to Danielle Hanes, Realtor.com’s chief economist.
“When the economy is growing, and investors have lots of opportunities to put their money to work and get a good return, that tends to push interest rates higher,” Hanes told McClatchy News. “On top of that, we’ve seen a lot of inflation. When inflation is high, that tends to push interest rates up, because investors know that the dollars (they) are going to be paid back with in the future aren’t worth as much as the dollars they have today. So they want to make sure they’re being compensated for that inflation risk.”
Where are rates headed?
February’s consumer price index data, which measures changes in prices, will be released on Tuesday, March 14. The outcome will at least partly determine whether mortgage rates continue their upward trend.
Where rates go after that depends on what action the Fed takes when it meets at the end of March.
Ahead of its meeting, the Fed is contending with February’s higher-than-expected inflation report, a strong labor market and now, bank failures. Originally, the Fed was expected to take a smaller rate hike than its recent 0.75 percentage point hikes — experts expected a hike closer to 0.25 percentage points.
Then, in March 8 testimony to Congress, Fed Chair Jerome Powell suggested that due to rising prices and the robust labor market, a bigger increase might be in store, The Washington Post reported.
Now, just days after his testimony, experts think the Fed is again reconsidering its next move after the failure of Silicon Valley Bank and Signature Bank. Interest rate futures hint that a smaller 0.25 rate hike is more likely now, Forbes reported — and that could be good news for mortgage rates, which are influenced by the interest rate set by the Fed.
Even if mortgage rates don’t immediately fall, experts are hopeful they will ease in the second half of the year, according to Evangelou.
“We expect inflation to ease, especially after the second half of the year as rate growth will likely ease after the second half of the year, so this can help with inflation,” she said. “We expect mortgage rates to decrease to the low rate of the 6%, so to be somewhere between 6.1 to 6.4%.”
What buyers need to know
If you are considering buying a home now, here’s what you should know, according to experts.
–Supply is lagging behind demand:While there are more homes available for sale now than this time last year, that figure is still lower than it was pre-pandemic, Hale said. In other words, “it’s not as good as it could be. But it is better than it has been over the last year or two.”
–There’s less competition:High costs are knocking some buyers out of the market, narrowing the competition for some homes. Buyers have more negotiating room than they have in previous years, which means there might be more time to think about a home before making a purchase, according to Hale.
–Affordability remains an issue:For first-time buyers and middle-income buyers, even though some home prices are easing, high rates make it more difficult to afford mortgages and down payments, Evangelou said. As the market continues to be impacted by these rate hikes, “would-be homebuyers continue to face the compounding challenges of affordability and low inventory,” Khater said in the March 9 release.
What sellers need to know
If you are looking to sell your home, here’s what you should know, according to experts.
–It’s going to take time to sell:There are fewer buyers in the market right now, and those that are shopping for a home are going to be more mindful of the price they’re paying, Hale said. Because there’s less competition, buyers have more negotiating power when it comes to choosing their home.
–Be sure to price your home appropriately:Because there are fewer sellers and more concern surrounding pricing, sellers should make sure they’re setting reasonable expectations and should exercise patience, Hale said. “Be mindful the competition, make sure that you price your home appropriately and be prepared to be a bit patient.”
–You might be able to avoid a new mortgage:Current homeowners looking to sell are “sitting on record amounts of equity,” according to Hale. If sellers leverage this right, it’s possible to choose a new home that reduces costs enough to avoid a mortgage altogether, thus skipping the painful rates other buyers are experiencing.
