Blazing-Hot Housing Market Cooling Down: 1 in 5 U.S. home sellers lowered their price at some point in May

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Mortgage Demand Falls To Lowest Level Since December 2018

According to the Mortgage Bankers Association’s seasonally adjusted index, mortgage applications for home purchases declined 1% last week compared to the previous week. Despite a slight drop, mortgage rates are still much higher than at the beginning of the year – this, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.33% from 5.46%, with points dropping to 0.51 from 0.60 (including the origination fee) for loans with a 20% down payment.

Rising interest rates and rapid increases in housing prices are putting a strain on affordability. Because there is still so little supply on the market, prices are continuing to rise, but various levels of purchasers see different pictures. Refinance applications, which are more susceptible to rate changes than purchase applications, declined 5% this week and were 75% lower than last year. Although rates have dropped from their highs in recent weeks, refinance demand has remained flat because many borrowers took advantage of the low rates last year.

Factors That Could Influence Sellers’ Behavior

The “rate lock-in effect,” as economists define it, occurs when we bind ourselves to the low mortgage rates we received when we bought or refinanced our homes. So, we stay put even though we want to move up, downgrade, or relocate.

Rate lock-in is not without risk (and should not be confused with “locking” an interest rate before closing on a mortgage). It takes properties off the market when demand for housing outstrips supply, driving up prices and encouraging brutal competition. Because they don’t have any equity to transfer into down payments, first-time home purchasers are particularly disadvantaged. Is rate lock-in, however, a real thing? How many moves does it obstruct? For more than 40 years, economists have debated the topic. 

Quigley and others discovered more evidence of the lock-in effect in the 2000s and 2010s, but experts disagreed on its significance. Rate lock-in is challenging to quantify because consumers relocate or stay for various reasons. And no one pays attention to it until mortgage rates rise dramatically.

House Hunters Take Note: The Blazing-Hot Housing Market Is Finally Cooling Down

A blazing hot housing market is beginning to chill across the United States, giving potential homeowners optimism after months of searching for a new house amid the most challenging conditions in decades. 

According to analysts, rising mortgage rates and surging property prices have caused some homebuyers to abandon the market entirely, reducing competitiveness. Because fewer people are competing for the same house, asking prices and the number of properties sold has dropped significantly.

People don’t like that today’s mortgage rates add hundreds of dollars to monthly payments. This week, the average interest rate on a fixed 30-year mortgage was 5.3 percent. Realtor.com Chief Economist Danielle Hale told CBS News that this is a 13-year high.

Although the dream of homeownership has been pushed out of reach for many middle-class Americans this spring, analysts say the summer may be a better time for those who want to stick it out.

Real estate tracker data released this month indicates that the market is cooling. For instance:

  • The number of existing homes sold fell 2.4% last month, the third straight month of declines, the National Association of Realtors said. 
  • According to data from the Mortgage Bankers Association, mortgage applications dropped 1% last week and 11% the week before that. 
  • According to Redfin, about 1 in 5 U.S. home sellers lowered their price at some point in May, the highest number of drops since October 2019. Rochester, New York; Detroit, Michigan; and Toledo, Ohio, have seen some of the most significant price drops, according to Realtor.com.
  • According to U.S. Census data released this week, sales of newly built homes fell 16.6% in April. 
  • The realtors association said Thursday that pending home sales fell almost 4% between March and April.   

Next week’s potential market moving reports are:

  • Monday, June 6th – No Report
  • Tuesday, June 7th –Consumer Credit
  • Wednesday, June 8th – Wholesale Inventories Revision       
  • Thursday, June 9th – Initial Jobless Claims, Continuing Jobless Claims
  • Friday, June 10th – Consumer Price Index, Core CPI, Federal Budget Balance

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at (800) 216-1047.

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