Spring Homebuying Season Sees Recovery Amid Falling Mortgage Rates
As the spring homebuying season kicks off, the housing market is showing signs of a recovery. Mortgage rates have fallen for the second consecutive week, dropping to their lowest level in over a month. The average rate on the 30-year fixed mortgage fell to 6.74% from 6.88% the previous week, according to Freddie Mac.
This decline in mortgage rates is accompanied by a rebound in supply, with new listings reaching a 17-month high in February and the total number of homes for sale rising to the highest level in a year, according to Redfin. While this is an improvement from last year’s levels, the supply-demand balance remains skewed, largely due to the effects of the Fed’s aggressive rate-hiking campaign.
Economist Gary Shilling described the Fed’s interest rate policy change as creating a “perfect storm” for the housing industry, with higher rates prompting potential sellers to hold off listing their homes, as many have locked in low rates during the pandemic or in preceding years. This “artificial tightness” in the housing market, caused by the significant gap between current and past mortgage rates, is expected to persist for some time.
Redfin CEO Glenn Kelman echoed this sentiment, suggesting that the Fed’s recent actions will have long-lasting effects on the housing sector, with low supply expected to persist for decades. This prolonged low supply has contributed to the continued elevation of home prices, with the median price of previously owned homes rising by 5.1% in January compared to a year ago.
The housing market’s hope for relief may be postponed, as a series of higher-than-expected inflation readings has strengthened the case for policymakers to postpone rate cuts. This delay suggests that mortgage rates are unlikely to decline significantly in the near term, potentially hindering a more substantial rebound in the housing market.
Moody’s Analytics predicts a total housing deficit of 1.5 million to 2 million units this year, with a shortfall of up to 1.2 million units for single-family homes.