Here’s What’s Happening With Home Prices And Mortgage Rates

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Realtor.com reported This Week in Real Estate that home buyers have lost roughly $107,000 in buying power this year due to mortgage rates doubling what they were a year ago. That begs the question: will home prices soften to close the affordability gap should mortgage rates stay elevated? While the rate of home price growth is cooling, CoreLogic reported this week that home prices were 13.5% higher in August than the same month a year earlier. CoreLogic expects the annual increases we have experienced the past few years will continue to shrink but will still show a gain of 3.2% by August 2023. The supply demand imbalance that pushed home prices more than 40% higher in just two years is what many believe will continue to support current prices. Below are a few newsworthy events from the first week of October that influence our business: 

High Mortgage Rates, Tight Supply and Economic Uncertainty: Here’s What’s Happening with Home Prices. Home prices are softening in most markets across the nation. Yet home prices are still higher compared with a year ago, and it’s unlikely they will fall too steeply. The sharp rise in mortgage rates over the past several months has made housing more expensive for anyone needing a loan. While that has some buyers pulling back, and some sellers lowering what they’re asking for, strong demand and tight supplies are supporting prices. But the rate of growth is cooling. This week, CoreLogic reported that home prices were 13.5% higher in August than in the same month a year earlier. That is the lowest annual rate of appreciation since April 2021, according to the report. It partially reflects cooling buyer demand due to higher mortgage rates. CoreLogic expects these annual increases will continue to shrink but will still show a gain of 3.2% by August of next year. It’s unlikely home prices will fall dramatically the way they did during the Great Recession caused by the financial crisis because there is much more demand than there is supply. Before the pandemic, supplies were low due to a decade of underbuilding following the Great Recession. The furious homebuying during the pandemic only exacerbated that shortage. That supply demand imbalance was what pushed home prices more than 40% higher in just two years. What most experts seem to agree upon is that this is not a “normal” housing market or even a normal correction in prices. Inflation, global economic uncertainty, rising mortgage rates and a still tight supply of homes for sale are all weighing on potential buyers.

Mortgage Rates Average 6.66%. Despite a slight decrease this week in mortgage rates, the average for the 30-year fixed-rate loan remains more than double what it was a year ago, adding hundreds of dollars per month to financing costs for home buyers. This is prompting more buyers to retreat from the market. Mortgage applications to purchase a home are down 13% week over week and have fallen 37% compared to a year ago, the Mortgage Bankers Association reported this week. Realtor.com reports that home buyers have lost about $107,000 in buying power this year. That means buyers who budgeted for a $500,000 home at the start of the year may now be able to afford a property worth only $400,000 or less. For buyers who are able to still financially move forward, more are turning to adjustable-rate mortgages to lock in a lower rate. However, that rate can jump significantly over time. ARM rates are about a percentage point lower than the 30-year fixed-rate mortgage. The share of ARMs was 11.8% of mortgage applications last week, up from around 3% earlier this year, the MBA reports.

Why a Good Jobs Report is Bad News for the Fed. On Friday, the Bureau of Labor Statistics reported 263,000 new jobs were added in September. While that growth seems like good news in this economy, it runs directly counter to what the Federal Reserve wants to see. The labor market is still creating jobs, which is not what the Fed wants. And the even worse news for the Fed was that the unemployment rate fell back to 3.5%. That low unemployment rate has to be driving the Fed nuts. Americans working and spending money is something they don’t want to see as they have forecasted a recession next year and are looking for the unemployment rate to reach 4.4%. This is a dark day for the Federal Reserve and its members, as their goal to put Americans out of work hasn’t worked out yet. 

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