Homebuyers Are Skipping High Loan Costs And Buying All Cash

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Following three consecutive weeks of mortgage rate increases, which propelled the average rate to its highest level since early November, Fannie Mae reported This Week in Real Estate that the benchmark 30-year fixed home loan fell 8-basis points to 6.71%. The scarcity of homes on the market has helped keep prices elevated. With the combination of higher borrowing costs on today’s values, homebuyers who can afford to bypass borrowing on a home loan are increasingly doing so. In April, 33.4% of U.S. homes purchased were paid for in cash, that represents the largest share of all-cash purchases in nine years. Below are a few newsworthy events from the first week of June that influence our business: 

As Interest Rates Climb, The Global Housing Market is Surprisingly Strong. The global housing market seems to be stabilizing faster than expected despite months of rising mortgage rates, according to Goldman Sachs Research. House prices are defying expectations and are rising in major economies such as the U.S., Australia, and Canada. House sales, which also declined with rate increases, are beginning to stabilize too. “A surge in mortgage rates has led to a sharp housing market pullback in most major economies since mid-2022, but the global housing market is showing some early signs of stabilizing,” Goldman Sachs’ economists Joseph Briggs and Giovanni Pierdomenico say. “House prices are leveling out more quickly and at a higher level than would normally be expected given the rapid rise in mortgage rates.” Our economists put this faster-than-expected stabilization down to two potential explanations. First, the lag from higher interest rates on house prices may be shorter than expected. Second, there are several structural factors that could be alleviating the slump across the housing market this cycle, Briggs and Pierdomenico say. These include low housing supply, with vacancy rates at very low levels in most countries; strong household balance sheets or excess savings following Covid-19; and a post-pandemic recovery in immigration that is lifting housing demand. Read the full story here.

Boost For Homebuyers: Average Long-Term US Mortgage Rate Eases From 7-Month High to 6.71% This Week. The average long-term U.S. mortgage rate eased back from a seven-month high this week, a welcome change for homebuyers navigating high borrowing costs and heightened competition for relatively few homes for sale. Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan fell to 6.71% from 6.79% last week. The pullback follows three straight weekly increases, which pushed up the average rate to its highest level since early November, when it climbed to 7.08%. “While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers,” said Sam Khater, Freddie Mac’s chief economist. The dearth of homes on the market has helped prop up prices. Homebuyers who can afford to bypass the higher costs of borrowing on a home loan are increasingly doing so. Some 33.4% of U.S. homes purchased in April were paid for in cash, according to data from real estate brokerage Redfin. That’s up from 30.7% a year earlier, and represents the largest share of all-cash purchases in nine years. Read the full story here.

Home Price Growth Continues Annual Single-Digit Slowdown in April. Nationwide, single-family home price growth rose by 2% year over year in April. This marked the 135th consecutive month of annual growth but the sixth straight month of single-digit gains, which have slowed from an all-time high of nearly 20% annual appreciation in the spring of 2022. A continued shortage of homes for sale could keep pressure on housing prices over the next 12 months. CoreLogic projects that home price growth will slow a bit more in 2023 before regaining steam to about 5% annual appreciation by April 2024. “While mortgage rate volatility continues to cause buyer hesitation, the lack of for-sale homes is putting firm pressure on prices this spring, leading to above-average seasonal monthly gains and a rebound in home prices in most markets,” said CoreLogic Chief Economist Selma Hepp. ”Nevertheless, the recent surge in mortgage rates and continued inflation issues suggest that rates may remain elevated, leading home price appreciation to possibly relax this summer and return to average seasonal gains later in 2023.” “Still, while slim inventory is pushing prices up once again and constraining affordability,” Hepp continued, “recent trends suggest that home price growth in 2023 will fall in line with the historical 4% annual average.” Read the full story here.

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