Housing Beat: Mortgage Rates Spike As Median Rental Housing Prices Break Records

This week in the housing and mortgage industries saw the continued rise of mortgage rates, the continued slump in existing home sales and rental housing costs reaching record-breaking highs.

On The Mortgage Front: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5.81% of June 23, up from last week when it averaged 5.78%. The 15-year fixed-rate mortgage averaged 4.92%, up from last week when it averaged 4.81%. And the five-year, Treasury-indexed hybrid adjustable-rate mortgage averaged 4.41%, up from last week when it averaged 4.33%

“Fixed mortgage rates have increased by more than two full percentage points since the beginning of the year,” said Sam Khater, Freddie Mac’s chief economist.

“The combination of rising rates and high home prices is the likely driver of recent declines in existing home sales. However, in reality many potential homebuyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity.”

The latest spike in mortgage rates did not dampen the enthusiasm of potential homebuyers. The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, increased 4.2% for the week ending July 17 from the previous week. The seasonally adjusted Purchase Index was up 8% but the Refinance Index was down by 3% from the previous week.

Joel Kan, MBA’s associate vice president of economic and industry forecasting, observed, “Mortgage rates are now almost double what they were a year ago, leading to a 77% drop in refinance volume over the past 12 months. Purchase applications increased for the second straight week … however, purchase activity was still 10% lower than a year ago, as inventory shortages and higher mortgage rates are dampening demand. The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and is potentially a sign that home price-growth is moderating.”

Homebuyers are also finding the costs of their mortgage are rising. According to the MBA, the national median mortgage payment was $1,897 in May, up from $1,889 in April. Payments have increased $513 in the first five months of the year, up 37.1%.

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On The Homeownership Front: Existing home sales were down for the fourth straight month in May, according to data from the National Association of Realtors (NAR), which recorded a 3.4% decline from April to a seasonally adjusted annual rate of 5.41 million in May. Year-over-year, sales receded 8.6% from May 2021’s 5.92 million total.

“Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance,” said NAR Chief Economist Lawrence Yun.

“Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions.”

The median existing-home price for all housing types in May was $407,600, up 14.8% from the $355,000 level in May 2021. This marks 123 consecutive months of year-over-year increases, the longest-running streak on record.

Furthermore, an increasing number homes were becoming available. The total housing inventory at the end of May was 1.16 million units, a 12.6% spike from April as well as a 4.1% decline from one year earlier. But Yun warned this newly available inventory will not be on the market for long.

“Homes priced appropriately are selling quickly and inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for homebuyers,” he said.

As for existing homeowners facing financial challenges, the MBA’s latest Loan Monitoring Survey revealed that the total number of loans now in forbearance decreased by 9 basis points from 0.94% of servicers’ portfolio volume in the prior month to 0.85% as of May 31. According to MBA’s estimate, 425,000 homeowners are in forbearance plans.

“It is a positive sign to see the overall servicing portfolio performance reach 95.85% current in May – 21 basis points higher than April’s figures,” said Marina Walsh, MBA’s vice president of industry analysis. “However, it is worth watching if the rapid increase in interest rates for all loans, combined with inflation that is outpacing wage growth, complicates post-forbearance workout options and puts additional pressure on borrowers in existing post-forbearance workouts.”

On The Rental Housing Front: The nation’s largest rental housing market is about to see its largest rent increase in almost a decade.

The New York City residents who occupy the more than 1 million stabilized apartments learned this week that the Rent Guidelines Board approved a 3.25% increase on one-year leases and a 5% uptick for two-year leases.

Mayor Eric Adams, who is himself a landlord, admitted the rent increases represent a “burden to tenants at this difficult time,” but he was also sympathetic to the landlords who have not been able to secure rent increases for years.

“This system is broken, and we cannot pit landlords against tenants as winners and losers every year,” Adams said in a press statement.

Across the nation, Realtor.com reported the U.S. median rental price hit a new record high in May at $1,849 per month, up 26.6% from pre-pandemic 2019. May was the tenth straight month of double-digit annual growth in national rents. The increase was the smallest since September 2021, offering renters a glimpse of a light at the end of the tunnel.

"There's no question that renters are facing sky high prices, and with rising inflation reflecting price jumps for both rents and everyday expenses many renters are feeling the strain on their finances," said Realtor.com Chief Economist Danielle Hale. "Still, our May data suggests that the rent surge is beginning to lose some steam, in part because incomes can't keep up, even in the strong job market."

Realtor.com is operated by the News Corp NWS NWSA subsidiary Move, Inc.

Photo: Intellectual/Pixabay.