Mortgage rates declined, slightly, for the fifth consecutive week, easing homebuyers’ borrowing costs just in time for the spring buying season.
But one major problem remains – there is just not enough inventory on the market. And low supply continues to keep home prices elevated.
The average rate on the 30-year fixed mortgage had a minor dip to 6.27% from 6.28% the week before, according to Freddie Mac. Rates have been sliding since early March, declining nearly half a point since March 2nd. U.S. Inflation also eased last month, with consumer index price (CPI) recording just a 0.1% rise in March, a further decline of 0.5% rise in February; the current index showed an annual inflation increase of 5%, the lowest since May 2021.
Although the drop in rates and cooling inflation help potential homebuyers, lack of inventory continues to be the most significant housing challenge. Sellers aren’t motivated to list their properties. One reason: more than 85% of homeowners with mortgages with locked in rates below 5% and wouldn’t be able to buy a new home with the same or lower rate elsewhere. In other words: buying a new property would mean getting new mortgage loans with rates over 6%.
“With fewer homeowners putting homes up for sale, gains in the number of options for buyers have slowed.” Danielle Hale, the chief economist at Realtor.com, said, “With both homebuyers and potential sellers feeling rather dour about the real estate market, especially with respect to the outlook for mortgage rates, the number of homes sold will continue to be lower than one year ago for the next few months”
The bottom line
A homebuyer who purchased a median-priced home of $386,797 with a 20% downpayment would pay an extra $791 in monthly mortgage compared to a year ago. The borrower would have the same principal balance but would be paying $1,617 a month with today’s rate at 6.27%, versus paying $825 with interest rate of 3.2% in January 2022.
“Existing homeowners have a disincentive to sell because every dollar borrowed costs more,” Mark Fleming, chief economist at First American Financial Corporation, previously told Yahoo Finance. “The financially rational decision is not to sell.”
One mortgage expert believe that sellers would have to see a significant change in the mortgage rates to jump ship,
“If I have a 3% mortgage, trading to a 6.25% mortgage isn’t all that attractive.” Keith Gumbinger, vice president of the mortgage website HSH.com, wrote, “If the leap is less, say to 4.5%, that might be more workable, and especially if I don’t need to increase (or increase by much) the size of the mortgage I’ll need to carry to make the move.”
Market inventory increased 15.3% on a year-to-year basis to 980,000 units towards the end of February, and increased from 850,000 units compared to prior year. However, this level of activity is still at a ‘historical low’, according to the National Association of Realtors. There’s currently a 2.6-month supply of homes; a robust market has a around 6-month supply.
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).