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Mortgage rates rose again this week, making it even more expensive to buy a home at the start of the all-important spring market.
With home prices skyrocketing, any rate hike draws out even more potential buyers, and yet somehow the housing market is more competitive than ever.
The average 30-year fixed mortgage rate hit its latest low of 2.75% in late January, and has since risen fairly steadily, according to Mortgage News Daily. After a considerable move overnight, it now stands at 3.45%.
“Since the beginning of February, the total damage is nearly three-quarters of a percent, making it one of the biggest moves in six weeks,” said Matthew Graham, chief operating officer for Mortgage News Daily.
“The buying market always wears these storms, and the ultra-tight supply situation coupled with the still voracious demand in many metropolitan areas can keep the housing market surprisingly optimistic. The bigger question is when the rate hike will finally affect prices. “.
The rate is the same now as it was a year ago. However, the difference from a year ago is that home prices are skyrocketing.
Prices have now risen more than 10% since now in 2020, according to CoreLogic, and it appears that profits are not diminishing. This is due to the low historical supply of homes for sale.
Home builders are not increasing as much as expected, because they face higher costs for land, labor and materials. They also continue to experience delays in delivering materials to job sites, due to Covid. Single-family home starts were much lower than expected in February, and the backlog of unbuilt homes is increasing.
“There has been a 36% increase over the past 12 months in single-family homes allowed but not started as some projects have been halted due to cost and availability of materials,” said Robert Dietz, chief economist for the National Association of Builders of Households. “Single-family home construction is projected to expand in 2021, but at a slower pace as home affordability is challenged by higher mortgage rates and rising construction costs.”
New homes are already priced higher than existing homes, so rates are particularly important for that market.
For a new home with an estimated median price of $ 346,757 in 2021 and the recent 30-year fixed-rate mortgage rate of 3%, a quarter-percentage-point increase in the interest rate would cost approximately 1.3 million households, according to a new calculation. by the NAHB.
The supply shortage of existing homes is only compounded by higher mortgage rates. Homeowners who sell will likely have to buy their next home at a higher interest rate, so that’s a significant impediment to moving.
The number of newly listed homes for sale for the week ending March 13 was 24% lower year-over-year, according to realtor.com. The total number of homes for sale is now half what it was a year ago.
While this situation makes things difficult for buyers, it also shows that buyer demand has not decreased much, even in the current environment of higher rates. If buyers had backed down, the supply would go up.
In fact, buyers are “flooding the housing market earlier this year, eager to find a home of their own,” according to Danielle Hale, chief economist at realtor.com. On average, homes sell seven days faster than last year.
The demand for housing advanced last year. The pandemic created an emotional need to nest, not to mention the practical need for more space, given the home-based work and school environment. Even as vaccines increase and more people return to offices and schools, home buyers are still not only in force, but increasingly competitive.
Just over a third of the homes sold in February sold for more than their asking price. That’s the largest share on record, according to Redfin, a real estate brokerage.
“This is the strongest seller’s market since at least 2006,” said Daryl Fairweather, Redfin’s chief economist. “Buyers outnumber sellers by such a large margin that many homeowners stick around because they know how difficult it would be to find a place to move to.”