The Spring shopping season is in full swing, but home buyers are struggling with high prices and fluctuating mortgage rates. In March, existing home sales dropped by 26% compared to pre-pandemic levels. This is due in part to many sellers being locked into their current low-rate mortgages.
Homeowners who currently hold 3% interest rates are the most sensitive to the current rise in rates. This is impacting new listings, which were down 28% from last year in April, resulting in limited availability on the market.
The low inventory is driving competition, causing prices to rise and sales to pick up speed. Entry-level homes are the most popular in many markets due to affordability pressures. This is pushing buyers to lower-priced tiers to secure a monthly payment they can afford.
Sales are declining compared to last year, but new listings are being impacted even more. In a low-inventory environment, sales are limited by the lack of new listings. Homes in the entry-level tier are selling quickly, especially those that are priced well. In fact, in affordable markets like Kansas City, Cincinnati, and Columbus, the typical home went pending in just three days during April.
See what prices in your area are doing below:
Baltimore Market per Zillow:
Washington DC Market per Zillow:
Seller Reluctance Sparks Drought in New Listings
As April rolled in, the real estate market grappled with a concerning shortage of new listings. This scarcity of available properties created a challenging environment for those in search of their dream homes, urging them to be prepared to act swiftly. With limited options on the table, potential buyers must have their financing and pre-approval arrangements to seize any opportunity that arises. What's more, recent trends indicate a noteworthy shift in property values. The prices of the least expensive third of houses have skyrocketed, experiencing an annual increase of 8%. Conversely, for the first time in over a decade, the most expensive homes have seen a decline in their value. In such a fiercely competitive market, staying informed and ahead of the game is paramount. It's essential to keep a close eye on the evolving landscape of the real estate market and be ready to make well-informed decisions when the right opportunity arises.
There are alternative solutions to help first-time buyers deal with affordability challenges. These include purchasing points or accessing down payment assistance if needed. Additionally, it's worth looking for potential buyers who are interested in higher-tier homes, where weaker prices offer more opportunities for negotiation. Another option to consider is a seller-financed 2-1 buydown. By exploring these alternatives, you can help your entry-level shoppers achieve their homeownership goals.
Will rate hikes end in June?
The Fed has increased rates by 25 basis points, causing concerns about how it will affect mortgage rates. Despite this, many believe that the market has already accounted for this potential change. Additionally, the Fed's messaging has shifted – they previously indicated they would continue raising rates, but they are now taking a wait-and-see approach regarding future rate moves.
Don't let the news of the May hike scare you away from becoming a homebuyer. The good news is that the potential increase in mortgage rates has already been factored in. Plus, even if the hike is paused in June, it's unlikely to impact rates in the short-term since this has also been considered by industry models. You can move forward with confidence knowing that rates should remain stable for the time being.
