On Real Estate & More – March 2023

That’s the question on everyone’s minds lately, as a recent decline in mortgage rates has convinced some buyers to start looking again. But there are a few other factors that may keep buyers out of the market.

Redfin recently stated that mortgage applications are up 28% from early November. At the same time, Freddie Mac shows the average rate on a 30-year-fixed-rate mortgage has declined to 6.12% from its October peak of 7.37%. Still, that is nearly double from a year ago, when the rate was 3.69%.

The more than full percentage point drop in mortgage rates over the past several months means significant savings for potential homebuyers. A consumer purchasing a $400,000 home today with a 20% down payment will have a monthly mortgage payment that is roughly $290 less than they would have paid in October.

Of course, mortgage rates are only part of the picture. A home’s price can just as easily push a buyer out of the market. The median listing price in January was $400,000, according to Realtor.com, roughly 8.1% higher than a year ago, but still lower than June’s peak of $449,000. According to the National Association of Home Builders, only 42% of new and existing homes sale in January were considered affordable for the typical U.S. household.

Even though homebuyer demand is improving, the number of available homes for sale is still very low, and that is keeping up the pressure on home prices. According to the National Association of Realtors, at the end of December, total housing inventory was below one million at 970,000, down 13.4% from November with just a 2.9 month supply on the market.

New home construction is down nearly 22% from a year ago and fewer sellers are putting homes on the market, adding to the supply crunch. Part of the reason sellers are not listing their properties is the high interest rate; sellers don’t want to trade in their 3% interest rate for a 6% interest rate.

Redfin reported that new listings fell 18% from last year (reporting from Jan. 22nd). That’s the smallest decrease in almost three months, but much steeper than the 8% decline a year ago. Interest rates in the 5% to 6% range aren’t enough to offset the bigger problem of limited supply; it is still a sellers’ market.

Even with elevated home prices, lower mortgage rates should help ease the affordability issue for many homebuyers. Mortgage rates have been trending lower with the expectation that the Federal Reserve is nearing the end of its interest rate hike push to rein in inflation.

It is anticipated that mortgage rates will end the year closer to 5% rather than the 6% where they are today. Waiting to time the market can be counterproductive; however, as there are so many unknowns in the housing market and if you want to buy or sell you should do that when the time is right for you.