Housing Beat: Mortgage Rates Keep Climbing As Inventory Levels Slowly Expand

More homebuyers were taking out mortgages despite climbing rates while the tight housing inventory is showing signs of improving. Nonetheless, many homebuyers are not optimistic about the housing market’s near future.

On The Homebuying Front: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5.30% as of May 12, up from last week when it averaged 5.27% — one year ago at this time, it averaged 2.94%. The 15-year fixed-rate mortgage averaged 4.48%, down from last week when it averaged 4.52% — it averaged 2.26% one year earlier. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.98%, up from last week when it averaged 3.96% and up from last year when it averaged 2.59%.

“Homebuyers continue to show resilience even though rising mortgage rates are causing monthly payments to increase by about one-third as compared to a year ago,” said Sam Khater, Freddie Mac’s chief economist. “Several factors are contributing to this dynamic, including the large wave of first-time homebuyers looking to realize the dream of homeownership. In the months ahead, we expect monetary policy and inflation to discourage many consumers, weakening purchase demand and decelerating home price growth.”

Homebuyer resilience was on display in the purchase market — the Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, was up by 2% and its Purchase Index rose 5% while its Refinance Index dipped by 2%. The refinance share of mortgage activity decreased to 32.4% of total applications from 33.9% the previous week.

“The rapid rise in mortgage rates continues to hit the refinance market, with activity 70% below a year ago. Most homeowners refinanced to lower rates in the past two years,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Despite a slow start to this year’s spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks.”

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While purchase activity was on the rise, the share of home sellers who dropped their asking price reached a six-month-high of 15% for the four weeks ending May 1, according to data released by Redfin RDFN. That percentage was up from 9% one year ago and was the largest annual gain since Redfin began tracking the data in 2015.

Demand is still exceeding supply, however, and even homes with lower prices are being acquired as fast as they come on the market.

“Homebuyers continue to be squeezed in nearly every way possible, which is causing some to take a step back from the market,” said Redfin Chief Economist Daryl Fairweather. “Unfortunately for buyers hoping to find a deal as competition cools, sellers are pulling back even faster, which is keeping the market deep in seller’s territory. So even though price drops are becoming more common, most homes are still selling above asking price and in record time.”

On The Home Selling Front: But there might be good news on the way — new data from Realtor.com reported a 12.2% decline in active listings in April, which marks the smallest year-over-year decline since December 2019.

"April data suggests a positive turn of events is on the horizon for weary buyers: If the trends we're seeing now hold true, we could potentially see year-over-year inventory growth within the next few weeks," said Danielle Hale, chief economist for Realtor.com. "While home shoppers are still seeking relief from record-high asking prices and all-time low supply, when compared to the past two-plus years of double-digit annual inventory declines, an imminent rebound is welcome news — a real estate refresh, if you will."

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Nonetheless, homebuyers are not particularly optimistic the environment will improve.

Fannie Mae’s FNMA Home Purchase Sentiment Index in April decreased by 4.7 points to 68.5, its lowest level since May 2020, as surveyed consumers cited the minimal levels of housing affordability and rising mortgage rates for their gloom. All six of the index’s components decreased month over month, with 76% of consumers indicating they believe it’s a bad time to buy a home and 73% of respondents expecting year-over-year mortgage rate spikes — both percentages represented record highs for the survey.

“Additionally, consumer perception regarding the ease of getting a mortgage also decreased across nearly all surveyed segments this month, suggesting to us that the benefit of the recent past’s historically low mortgage rate environment appears to have diminished, and affordability is poised to become an even greater constraint going forward,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “This sentiment is consistent with our forecast of decelerating home sales through the rest of 2022 and into 2023.”

Photo: F. Muhammad / Pixabay