Homebuyers and sellers have never been this ‘pessimistic’ as mortgage rates soar above 7% – here’s what experts say about the chances of a crash or bounce

Homebuyers and sellers have never been this ‘pessimistic’ as mortgage rates soar above 7% – here’s what experts say about the chances of a crash or bounce

Mortgage rates are up over 7% again after the Federal Reserve raised interest rates last week — and both buyers and sellers are stalling amid economic volatility.

“The housing market is the most interest rate sensitive sector of the economy, and the rates of impact on homebuyers are still developing,” says Sam Khater, chief economist at housing finance giant Freddy Mac.

“Home sales are down significantly, and as we head into the end of the year, no improvement is expected.”

The number of new listings on the market is down 20% from last year, according to Realtor.com.

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30-year fixed-rate mortgage

Freddie Mac reports that the average interest rate on a 30-year fixed-home loan is currently 7.08%, up from 6.95% last week.

Last year at this time, the 30-year average was 2.98%.

However, potential rates are often overrun and could fall in the future, says National Association of Realtors (NAR) chief economist Lawrence Yoon — noting an unusually large discrepancy between current mortgage rates and the federal funds rate.

“Returning to the normal differential between the government borrowing rate and the home purchase borrowing rate would bring 30-year mortgage rates down to about 6%,” Yoon explains.

15 Years Fixed Return Mortgages

The average 15-year mortgage is currently 6.38%, up from 6.29% last week, according to Freddie Mac. By comparison, the 15-year average was 2.27% last year at this time.

With interest rates rising, buyers and sellers remain in a “wait and see” mode, wrote Danielle Hill, chief economist at Realtor.com.

The average listing price is up 11.7% from last year; However, the pace of growth continues to slow. The typical price for a home for sale on Realtor.com was $425,000 in October, compared to the summer’s peak of $450,000.

“The price of a home for sale continues to rise at a double-digit pace, and could finally return to single-digit territory by the end of the year if the recent slowdown continues,” Hill says.

Moving into 2023, Yun’s NAR forecasts that home sales nationwide will fall another 7%, while the median price will rise by a modest 1%. He believes that the market will not really recover until 2024, and he expects a 10% jump in sales and a 5% rise in prices.

“For most of the country, home prices are flat because available inventory is so low,” Yoon says, easing expectations of a Great Recession-style crash.

“Housing inventory is about a quarter of what it was in 2008… Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash. Shorting is almost impossible due to The dramatic rise in prices over the past two years.”

5 year adjustable mortgage

And the five-year adjustable-rate mortgage — or five-year ARM — is also up from last week, when it averaged 6.29%. It is now 6.38%.

Last year at this time his average was 2.27%.

ARM starts with lower interest costs than fixed rate loans, such as the more popular 30-year fixed-rate loans.

However, adjustable prices can rise once the initial fixed price period has expired, since it is tied to a variable criterion such as the base price.

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Housing confidence is deteriorating

Fearing higher interest rates and economic uncertainty, both buyers and sellers are retreating from the housing market.

The Fannie Mae home buying confidence index fell 4.1 points in October to a record low of 56.7, marking its eighth consecutive monthly decline.

Only 16% of respondents said that now is the right time to buy a home, while the percentage who think now is the right time to sell a home has continued to decline.

“Consumers are increasingly pessimistic about both home buying and selling conditions,” says Doug Duncan, the mortgage company’s vice president and chief economist.

“As ongoing affordability constraints reduce homebuyer demand, and homeowners are reluctant to sell at potentially lower rates, we expect home sales to slow further in the coming months, in line with our expectations.”

Economists at Goldman Sachs expect home prices to fall 5-10% next year.

Mortgage applications continue to decline

Rising borrowing costs, high inflation and recession fears continue to make potential home buyers wary of entering the market.

Mortgage purchase orders are down 1% from the previous week, according to the Mortgage Bankers Association (MBA). This was 41% lower than the same period last year.

“Requests increased for the first time after six weeks of declines, but remained close to 2015 lows, as homebuyers remained marginalized by high rates and ongoing economic uncertainty,” says Joel Kahn, vice president and deputy chief economist at the MBA.

“Refinancing operations continued to decline, with the index reaching its lowest level since August 2000.”

Refinancing requests for existing home loans were down 4% from the previous week, and 87% from a year earlier.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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