As interest rates rise and sales of existing houses decline, demand for home mortgages has fallen to its lowest point in 22 years.
Home sales were rapidly affected by the Federal Reserve’s decision to combat inflation by raising interest rates, but despite the slowdown, home prices are still at all-time highs, according to statistics released on Wednesday.
According to industry figures, the national median house price reached $416,000 in June, a 13.4 percent increase from a year earlier and a new high.
The average contract rate for a 30-year fixed-rate mortgage touched 5.82 percent at the same period, which is about double the most recent lows observed in January.
Amid rising home prices and interest rates, mortgage demand fell 6 percent last week from the week prior, according to a report from the Mortgage Bankers Association.
It marked the lowest level for mortgage applications since 2000, said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
According to Kan, “the worsening economic outlook, increasing inflation, and chronic affordability issues” are the main factors affecting homebuyer demand.
According to him, “the fall in recent purchase applications is consistent with slower homebuilding activity due to fewer buyer traffic, continued shortages of building materials, and higher costs.”
As a result of increased mortgage rates and rising home prices, sales of previously inhabited U.S. homes dropped for the fifth consecutive month in June.
According to the National Association of Realtors, existing home sales dropped 5.4 percent from May to a seasonally adjusted annual pace of 5.12 million last month.
That was lower than the 5.37 million home sales pace economists were expecting, according to FactSet. Existing home sales fell 14.2 percent from a year ago.
Even as home sales slowed, home prices kept climbing in June. The national median home price jumped 13.4 percent in June from a year earlier to $416,000.
NAR noted that based on statistics going back to 1999, that represents an all-time high. Home prices are rising, although not as quickly as they were early this year.
According to Lawrence Yun, chief economist for NAR, “with each passing month it looks price appreciation is less vigorous than prior months.”
Sales have slowed to their weakest rate since June 2020, close to the beginning of the epidemic, when they were moving at an annualized rate of 4.77 million houses, after rising to a 6.49 million annual rate in January.
Sales in June were moving at the worst pace since January 2019 even when the pandemic-related slowdown was excluded.
The June sales report is the late evidence that the housing market, a key driver of economic growth, is slowing as homebuyers grapple with sharply higher mortgage rates than a year ago.
‘A combination of higher prices and higher mortgage rates clearly has shifted the dynamics in the housing market,’ Yun said. ‘Home sales will only begin to stabilize once mortgage rates begin to stabilize.’
Mortgage rates have been climbing in response to a sharp increase in 10-year Treasury yields, reflecting expectations of higher interest rates overall as the Federal Reserve raises its benchmark rate in a bid to quell the highest inflation in decades.
Even though rising mortgage rates made housing less affordable, sold properties didn’t stay on the market for very long.
Last month saw the quickest sales rate ever recorded by the NAR, with houses selling on average in just 14 days after being on the market. In May, there were 16 days.
Homes frequently sold more than 30 days after going on the market before the epidemic.
Last month, at least, there were more properties available for those who could negotiate the effects of increased mortgage rates.
According to Yun, the number of houses for sale increased annually for the first time in three years, up 2.4 percent from June of last year and 9.6 percent from May to reach 1.26 million.
The number of houses for sale still represents a 3-month supply, the NAR stated, even at the current sales rate.
However, it still falls well short of the 5- to 6-month supply that would indicate a more balanced market between buyers and sellers. This is an improvement from the 2.6 months in May and 2.5 months a year earlier.
First-time buyers made up 30% of purchases last month, according to the NAR, despite the still-scarce supply of available houses for sale, rising mortgage rates, and rising home prices.
Although that is an increase from the 27 percent in May, it is still low by historical standards, when the share of first-time purchasers in deals may reach 40 percent or more.
Real estate investors and other buyers able to buy a home with just cash, sidestepping the need to rely on financing, accounted for 25 percent of all sales last month, NAR said.