The more interest rates climb, the smaller the pool of homebuyers who can still afford to buy.
Even Before Latest Interest Rate Hike, Homebuying Never More Expensive
During the four weeks ending June 12, mortgage rates hit 5.78% – the highest level since November 2008 and the largest one-week increase since 1987. Combine that rate of 5.78% with the Federal Reserve’s announcement of its 0.75% rate increase on June 15 – you’ll come to the conclusion that interest rates at and above 6% are soon to be the norm.
As of June 12, the typical buyer with a 30-year fixed-rate mortgage was facing a monthly payment of $2,514, up from $1,692 one year ago.
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The most obvious results? Fewer buyers able to afford buying, less competition from other buyers, longer DOM metrics, fewer bidding wars, and a larger share of price cuts.
According to Taylor Marr, deputy chief economist at Redfin, “The housing market isn’t crashing, but it is experiencing a hangover as it comes down from an unsustainable high. Housing demand has already cooled significantly to the point that the industry has begun facing layoffs. This week’s rate hikes will further stretch homebuyers’ budgets to the point that many more may be priced out. While a lot of home sellers are already dropping their prices, more homeowners will likely decide to stay put now that the mortgage rate on a new home is significantly higher than their current one.”
Indicators of Homebuying Activity
- For the week ending June 16, the 30-year fixed-rate mortgage rates increased to 5.78%, the highest level since November 2008 and the largest one-week increase since 1987.
- For-sale home searches on Google were flat from one year ago during the week ending June 11.
- Redfin’s Homebuyer Demand Index fell -145 y/y during the week ending June 12.
- Mortgage purchase applications dropped -16% y/y as the seasonally adjusted index gained +8% w/w during the week ending June 10.
Key Market Takeaways for 4-Weeks Ending June 12
- Median home sale price hit record $399,806, +14% y/y
- Median asking price of newly listed homes hit $409,251, an increase of +16% y/y
- Monthly mortgage payment on median asking price home at current 5.78% mortgage rate jumped to $2,515, an increase of +49% y/y from $1,692 last year when mortgage rates were 2.93%
- Pending home sales dropped -8% y/y
- New listings of for-sale home down -1% y/y
- Active listings decreased -6% y/y, the smallest decline since December 2019
- 4% of for-sale homes had price cuts during the four-week period ending June 12
- Average sale-to-list price data very slightly declined to 102.5%, a very slight increase from 102% one year ago
Thanks to Redfin.
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