Winter Home Buyers Face Tough Choices as Rates and Prices Stay High!
Attention, future homeowners! The real estate landscape is shifting dramatically as mortgage rates have surged to their highest point since July—reaching a staggering 6.91% for a 30-year fixed mortgage. This spike has sent waves of anxiety through the home-buying community, with industry experts cautioning that this will only make homes pricier and push housing inventory to new lows.
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This week’s data release from Freddie Mac reveals a concerning trend: a 30-year fixed mortgage rate is inching closer to that dreaded 7% mark, up from 6.85% last week and significantly higher than 6.62% just a year ago.
“Inching up to just shy of 7%, mortgage rates reached their highest point in nearly six months,”
Sam Khater
While buyers are feeling the heat, there’s a silver lining. As the market evolves, pending home sales are on the rise, suggesting that more people are ready to jump back into the fray. However, as mortgage rates climb and home prices continue their upward trajectory, the prospects for buyers are becoming increasingly challenging.
Dive Deeper into Home Prices
The Federal Housing Finance Agency reports that house prices have surged by 5.7% over the past year, compounding the challenges faced by would-be homeowners. Patrick Duffy, a senior real estate economist, advises those considering refinancing to hold off until rates drop. He suggests homeowners might want to stay put and invest in renovations to boost their home equity while they wait for a more favorable mortgage landscape.
“I understand the frustration among potential buyers and sellers. With mortgage rates nearing 7%, purchasing a home becomes increasingly expensive at a time when home prices are also on the rise due to limited supply,” Duffy explains.
For those contemplating their next move, Duffy suggests that if you can stay in your current home, consider renovations that could enhance your home’s value and equity while awaiting a more favorable refinancing opportunity.
But beware—sticky inflation is lurking. The Federal Reserve signaled in December that rate cuts may come at a slower pace, with inflation hovering above the 2% target. This persistent inflation, influenced by rising shelter costs, poses a challenge for the housing market this winter.
Winter Woes
As mortgage rates climb, the seasonal housing market may face more significant challenges. Historically a time for buyers to capitalize on lower prices and a less competitive landscape, this winter could be different. Senior Economic Research Analyst Hannah Jones notes that the winter market has dipped more than in previous years, primarily due to soaring mortgage rates.
“Typically, winter buyers benefit from a more relaxed market pace and lower prices, but rising mortgage rates may dampen those savings,” Jones warns. “Many prospective buyers are likely to remain on the sidelines, waiting for more favorable rates and improved affordability next year.”
The Long Game
Economics Professor Jonathan Erest highlights that the recent uptick in mortgage rates may discourage homeowners from listing their properties for sale, further tightening supply. Many homeowners are locked into historically low mortgage rates of around 3.4% from the pandemic, contributing to a continuing housing price surge.
“This low supply, combined with a shortage of new construction, has kept housing prices elevated. Given that housing constitutes over a third of the Consumer Price Index, high home and rental costs are fueling inflation. For consumers, this may mean a longer wait before they can lower payments through refinancing,” Erest cautions.
