Wednesday, November 30, 2022

Home sales fall again as mortgage rates rise

Sales of previously occupied US homes slowed for the third straight month in April as mortgage rates rose, raising the cost of borrowing for buyers as home prices hit new highs.

The National Association of Realtors said Thursday that current home sales fell 2.4% from March last month to a seasonally adjusted annual rate of 5.61 million.

According to FactSet, it was slightly higher than economists expected. Sales fell 5.9% from April last year. After climbing at an annual rate of 6.49 million in January, sales have fallen at the slowest pace since June 2020, near the start of the pandemic, when they were running at an annual rate of 4.77 million homes.

The median home price in April rose 14.8% at this time to $391,200 compared to a year earlier. The NAR said it was the highest ever level as of 1999 data.

“Undoubtedly, rising mortgage rates, rising prices are hurting affordability, but we shouldn’t discount that we still have inventory crunch,” said Lawrence Yoon, NAR’s chief economist.

Fierce competition and ultra-low mortgage rates for limited properties on the market have superheated the housing market over the past few years, but now its cooling as homebuyers are increasingly facing higher home financing costs than a year ago. This is after a sharp increase in mortgage rates.

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In April, the weekly average rate on 30-year fixed-rate home loans climbed above 5% for the first time in more than a decade, traditionally eroding homeowners’ purchasing power at the start of the spring homebuying season. Busiest period for home sales.

Mortgage buyer Freddie Mac reported Thursday that the 30-year rate slipped to 5.25% this week from 5.3% last week. A year ago, the average rate was 3%.

Mortgage rates are climbing after a sharp rise in 10-year Treasury yields, reflecting expectations of higher interest rates overall as the Federal Reserve hikes short-term rates to combat the worst inflation in 40 years.

With inflation at a four-decade high, rising mortgage rates, high home prices and a tight supply of homes for sale, homeownership has become less attainable, especially for first-time buyers.

Higher rates can limit the pool of buyers and dampen the rate of increase in home prices – good news for buyers. But high rates can also limit affordability.

For now, the housing market continues to favor sellers as buyers vie for still tight inventories of homes for sale, driving up home prices. Even as sales slowed last month, it was common to receive multiple offers for homes in the market.

Yoon said the inventory levels should be high before many offers are eliminated from the market. Till then the prices are likely to rise further.

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“We expect, again, a steady decline in home sales, but not necessarily home prices,” he said.

On average, homes sold in just 17 days after they hit the market last month, unchanged from March or April last year. In a market that is more evenly balanced between buyers and sellers, homes typically stay on the market for 45 days.

As is typical in spring, the number of homes on the market increased in April compared to the previous month. Some 1.03 million properties were available for sale by the end of April, up 10.8% from March, but down 10.4% from April last year.

At the current selling pace, the level of properties for sale equates to 2.2 months’ supply, NAR said. That’s up from 1.9 months in March, and down from 2.3 months a year ago.

NAR said real estate investors and other buyers able to buy homes with just cash, excluding the need to rely on financing, accounted for 26% of all sales last month, down from 28% in March.

Homes bought by investors accounted for 17% of sales in April, up from 18% in the previous month, while first-time buyers made up 28% of transactions, up from 30% in March and 31% a year ago.


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