A brief increase in mortgage applications earlier this year sparked some enthusiasm that the housing market might have hit bottom. But new statistics indicate that’s not the case.
Mortgage applications dropped back to a 28-year low in the week ended Feb. 17. “Mortgage rates increased across all loan types last week,” said Joel Kan, an economist at the Mortgage Bankers Association. And that was responsible for the 18% slide in mortgage applications from a week earlier, he said.
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“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” Kan said.
“The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”
The 30-year fixed mortgage rate averaged 6.5% in the week ended Feb. 23, according to Freddie Mac. That’s the highest level since November and up from 6.32% a week earlier.
“The economy continues to show strength, and interest rates are repricing to account for the stronger-than-expected growth, tight labor market and the threat of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist.
An Upside for Home Buyers
To be sure, there’s an upside if you’re looking to purchase a home. Freddie Mac research shows that mortgage rates tend to vary more among lenders as rates rise, he said.
“This means homebuyers can potentially save $600 to $1,200 annually by taking the time to shop among lenders to find a better rate.”
Meanwhile, existing home sales slid 0.7% in January from December, the 12th consecutive monthly slide, according to the National Association of Realtors. Sales were down 36.9% from a year ago.
The median existing-home price slipped 2% in January, to $359,000 from $366,900 in December. Of course, the latest price was still up 1.3% from January 2022. The price peaked at a record $413,800 in June.
“Home sales are bottoming out,” said NAR Chief Economist Lawrence Yun. “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”
Benefits for Home Buyers
While falling prices aren’t a sign of strength for the home market, they are a welcome relief for those looking to acquire a home.
There’s also some good news for potential buyers on the home inventory front. Inventory totaled 980,000 units at the end of January. That’s up 2.1% from December and 15.3% from a year ago.
Unsold inventory sits at a 2.9-month supply at the current sales pace, unchanged from December but up from 1.6 months in January 2022. A six-month supply is considered healthy.
“Inventory remains low, but buyers are beginning to have better negotiating power,” Yun said. “Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price.”
