Despite record-high interest rates, home prices continue to rise in some regions. The current average interest rate for a 30-year fixed mortgage is more than 7.5%, actually down eight basis points since last week, according to BankRate.com. Yet a year ago, the rate averaged 5.13%.
Even with interest rates hitting their highest in more than 22 years in August, home prices rose 0.9% in June compared to the previous month. The reason? Demand still outpaces the supply of homes for sale, according to Realtor.com® and the S&P CoreLogic Case-Shiller 20-city house-price index. Home prices were up for a fourth month in a row, though U.S. home prices were down 1.2% nationally on a year-over-year basis.
Higher mortgage rates make it harder to buy a home, yet home competition is still hot, driven partly by a lack of inventory, which is also exacerbated by high-interest rates. The record-setting rates are a hurdle for buyers and sellers alike, resulting in would-be sellers opting to stay put rather than move. Many are unwilling to trade their low-interest-rate home for a new home with a higher interest rate.
The lack of for-sale homes fuels the price increases. But Realtor.com economist Jiayi Xu has a hopeful outlook, pointing to a shrinking inventory gap between demand and supply, with a 2.4% improvement over last week. “If the current trend of a narrowing gap in inventory persists, it will be very likely to see more newly listed homes available than the record low set last fall and winter,” she said.
As for interest rates, experts say there is a tipping point – a rate that would bring more buyers into the market and possibly more sellers. Recent research suggests the “magic” rate for buyers is 5.5%. If the 30-year rate fell to 5.5%, more home buyers indicated they would purchase homes, according to John Burns Real Estate Consulting in April. The company surveyed over 1,300 homeowners and renters and found that 62% of prospective buyers who plan to buy their next home with a mortgage said that they believe a “historically normal mortgage rate” is less than 5.5%.
Rates are high now, but the good news is that they are expected to fall over the next few years. In its July housing forecast, Fannie Mae expects the 30-year to go below 6% at the end of 2024.
Even so, home buying and selling isn’t entirely driven by financing. The compelling need to change when life circumstances change is hard to ignore. The type of housing people need changes with evolving family needs or career shifts. As family and life events happen, the need to sell becomes more pressing, overriding interest rate squeamishness.
So, as summer comes to a close, buyers and would-be sellers alike are looking for interest rate relief this fall. According to Xu, a “glimmer of optimism” lies ahead, with mortgage rates possibly coming down. Some experts say the Federal Reserve might hold rates steady at its next meeting in September.
Slowing – and possibly lowering – rate hikes would be a welcome change for the real estate market.
For more information see realtor.com/news/trends/as-mortgage-rates-hit-7-what-exact-interest-rate-will-convince-homeowners-to-sell-and-boost-house-sales and realtor.com/news/trends/mortgage-rates-surge-to-22-year-high-but-glimmer-of-optimism-ahead and realtor.com/news/real-estate-news/u-s-home-prices-rose-in-june-paced-by-chicago-amid-inventory-squeeze
By Tom Kalinski. Tom is the broker/owner of RE/MAX of Boulder. He has a 40-year background in commercial and residential real estate. For questions, email Tom at [email protected], call 303.441.5620 or visit boulderco.com.