Housing Beat: Mortgage Rates Break 4% Barrier; New Peak For Median Home Sales Price; Vacation Homes Lose Appeal

Mortgage rates cracked the 4% threshold for the first time since May 2019, while a new survey recorded another record high for median sales prices on U.S. residential properties.

Mortgage Rates Rising: Freddie Mac FMCC announced the 30-year fixed-rate mortgage averaged 4.16% for the week ending March 17, up from last week’s 3.85%. The 15-year fixed-rate mortgage averaged 3.39%, up from 3.09% last week, and the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.19%, up from last week when it averaged 2.97%.

“The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year,” said Sam Khater, Freddie Mac’s chief economist.

"While home purchase demand has moderated, it remains competitive due to low existing inventory, suggesting high house price pressures will continue during the spring homebuying season."

While mortgage rates were on the rise, fewer Americans were applying for home loans.

The Mortgage Bankers Association (MBA) reported mortgage applications decreased 1.2% from the first to second week of March.

"Rates are now roughly a full percentage point higher than a year ago and continue to hamper refinance activity. Refinances declined for both conventional and government loans," said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Purchase applications slightly increased, with both conventional and VA loan applications seeing gains,” Kan added. “The average purchase application loan size remained elevated at $453,200 — the second- highest amount in MBA’s survey.”

Sales Prices Rising: The median home sales price in February was $345,000, up 3% from January and up 17.3% from February 2021, according to new data published by RE/MAX Holdings RMAX. February’s median home sales price was the highest recorded by RE/MAX since the company began tracking housing data.

The increasing sales price came as home sales declined during February, dropping 0.9% from the previous month and down 4.7% from the previous year. Inventory declined 6.8% from January to February, marking the first time in four months there wasn’t a double-digit monthly decline; inventory was down 28.9% from February 2021. February recorded a 1.2-month inventory supply, compared to 1.3 in January and 1.8 a year ago.

“With such high demand and low inventory, houses are flying off the shelves right now — even at prices that have reached new highs,” said RE/MAX President and CEO Nick Bailey. “Having more listings on the market would be good for everyone, but the stage is set for another active spring selling season.

“Buyers, feeling pinched by inflation, are snapping up new listings and racing to take advantage of near historically low rates before they go up,” Bailey added. “It's clear the dream of homeownership is still top of mind for many Americans.”

Dreams Deferred?: However, a new survey from TD Bank TD finds many first-time homebuyers feel anxious and unprepared when going into this competitive housing market.

In a survey of more than 1,000 Americans planning to buy their first home, 36% of respondents felt now was a good time to buy — that share was 59% in a similar survey from last year and was 68% in 2020 before the pandemic took root.

Seven out of 10 respondents stated they were concerned about the economy and 67% were concerned about their ability to afford a home. Nearly two-thirds of respondents said home prices are too high, although 35% admitted they wanted to purchase a home as quickly as possible.

"Whether you enter now or in a few months, you're going to be faced with a competitive market," said Steve Kaminski, head of U.S. residential lending at TD Bank. "If first-time homebuyers want to ease anxieties and succeed, it's imperative that they prepare and meet with a lender early in the process. Lenders can help lay the financial foundation and educate buyers on the paperwork they'll need for the mortgage process, giving them confidence as well as a leg up on the competition."

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Staycation Versus Vacation: One area of the housing market where activity has waned involves vacation homes. New data from Redfin RDFN determined demand for vacation homes were down sharply last month, with mortgage-rate locks for second homes reaching their lowest level since May 2020.

Although demand for vacation homes is 35% above the pre-pandemic levels, it is still much lower than the 87% increase measured in January.

February also marked the first month since the start of the pandemic that growth in demand for primary residences outpaced that of vacation homes.

“Rising mortgage rates, combined with rising home prices, are hitting the second-home market much harder than the primary-home market,” said Redfin Chief Economist Daryl Fairweather. “That’s largely because vacation homes are optional. People don’t need a second home, but they do need a place to live. Still, people are buying up vacation homes more than they were before the pandemic, as work remains more flexible than it used to be.”

More Housing To Come? Looking ahead, the housing market should begin to see an increase in new properties for sale. According to data published by Verisk Analytics, Inc. VRSK, single-family housing authorizations increased by 4.79% year-over-year in February, while the trailing three-month outlook spanning December through February was up 2.99% from the same period one year earlier.

Nonetheless, Verisk acknowledged that supply chain problems and rising inflation will not enhance the market’s vibrancy.

“While the housing market has been a bright spot for the U.S. economy in 2020 and 2021, recent geopolitical events could negatively affect the housing market outlook, and we may begin to see homeowners pull back on expensive home remodels, which rebounded this month,” said Jonathan Kanarek, managing director of property intelligence solutions at Verisk.

“The coming months should provide greater insight into how homeowners and prospective homeowners may react to additional economic uncertainty, including even greater inflationary pressure.”

Separately, builder confidence in the market for newly built single-family homes moved two points lower to 79 in March from a downwardly revised reading in February, according to the Housing Market Index published by the National Association of Home Builders (NAHB) and Wells Fargo WFC.

This marks the third consecutive month that builder sentiment has declined and the first time that the index dipped below the 80-point mark since last September.

“The March HMI recorded the lowest future sales expectations in the survey since June 2020,” said NAHB Chief Economist Robert Dietz.

“Builders are reporting growing concerns that increasing construction costs (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market. While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”

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