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March saw a decline in home sales due to fluctuating mortgage rates
According to the National Association of Realtors, annualized sales of previously owned homes dropped by 22% from March of last year, or 2.4%, to 4.4 million units in March. The steep rise in mortgage interest rates, which made buyers more susceptible to changes in rates, is to blame for this fall. At the end of March, the average rate on a 30-year fixed mortgage increased to 6.85% from 6.45% in January.
Despite a rise in supply, inventories in 2019 is still 41% below pre-pandemic levels. The limited supply is preventing a big decline in property prices. Existing homes sold in March at a median price of $375,700, a 0.9% year-over-year decline. Over $1 million in property sales fell by 29% from March 2022, while residences priced between $250,000 and $500,000 fell by 14%.
Both first-time and repeat homebuyers still struggle with affordability because they are sensitive to changes in mortgage interest rates. First-time purchasers accounted up 28% of sales in March, down from 30% the year before, while 27% of transactions were cash transactions.
Builder confidence increases in April as they take an almost record-high market share
Due to the limited number of available existing homes for sale, builders' confidence in the newly built homes market grew in April for the fourth consecutive month. With values below 50 being viewed negatively, the National Association of Home Builders/Wells Fargo Housing Market Index increased by 1 point to 45. Comparing the current measurement to 77 in April 2022, it is the highest since September.
Builders have a significant edge thanks to the 25% decrease in new listings of existing homes compared to previous year. Despite the fact that mortgage rates are higher than they were last year, slightly lower rates are helping to support demand. The NAHB Chairman, Alicia Huey, points out that a further drop in mortgage rates to below 6% will increase demand for houses. But the business still has to deal with issues related to building materials, such as restricted access to electrical transformer machinery.
Three factors make up the index: buyer traffic stayed the same at 31, current sales circumstances increased by 2 points to 51, and sales forecasts for the next six months increased by 3 points to 50. In contrast to the historical average of 10%, according to builders, one-third of the housing inventory is made up of new construction. The amount of new development implies that the credit climate for builders is still robust, despite worries about construction loans following recent regional bank collapses.
While the percentage of builders lowering prices decreased to little under a third, the share of builders employing sales incentives grew slightly to 59% in April from 58% in March. In April, prices were reduced on average by 6%. Regionally, the Northeast, Midwest, South, and West all saw an increase in builder sentiment.
Homebuyers' demand for mortgages declines by 10% as interest rates rise
Homebuyers are growing more sensitive to weekly changes in mortgage rates, and affordability continues to be a major obstacle, especially for first-time buyers. According to the seasonally adjusted index provided by the Mortgage Bankers Association, mortgage applications for house purchases decreased by 10% as a result of an increase in the average contract interest rate for 30-year fixed-rate mortgages with conforming loan sums from 6.30% to 6.43% last week. In comparison to the same week last year, when the 30-year fixed-rate mortgage averaged 5.20%, buyer demand was 36% lower.
The MBA's deputy chief economist, Joel Kan, said that buyers are becoming more picky because to low inventory and ongoing affordability concerns. First-time purchasers have retreated, as seen by a 10% decline in FHA purchase applications and an increase in the average purchase loan size.
But more affluent consumers are also having trouble getting finance. Prior to recent regional bank failures, banks used to offer jumbo loans at better rates; now, this disparity is now closer between jumbo and conforming loans. Kan anticipates this pattern to persist. Mortgage rates have been fluctuating between 6% and 7% for several months, while the number of applications to refinance house loans dropped by 6% from the previous week. Despite consumers getting used to higher rates, home prices have not dropped enough to make them more affordable.
