Mortgage Interest Fluctuations Reveal Homebuyers’ Rate Sensitivity
At QuickDraw Fund Control, we like to keep tabs on the trends that are affecting builders in the markets we serve. Some of the biggest news in 2022 has been the increase in mortgage interest rates. The average 30-year fixed mortgage rate is up by more than two percentage points since the beginning of the year, a fact that is seriously undercutting the purchasing power of homebuyers across the country. After spiking to well over 6% in June, rates have again shifted upward. According to data from S&P Global, the average interest rate for a 30-year fixed mortgage in October 2022 is 7.16% to 7.26%.
At the close of July, Redfin, a leading tech-based real estate company, posted data demonstrating how homebuyer behavior is trending with mortgage interest rates. The platform’s Homebuyer Demand Index, which measures requests for home tours and other home-buying services from Redfin agents, had increased 15 points since the week of June 19. This came after a 10-week period that saw decreasing demand beginning in mid-April.
Concurrent Google data showed that searches of homes for sale rose 11% since late May.
However, the early interest in homes has not translated to an increase in purchase contracts or sales. Pending home sales are actually down, and with fewer homes being listed, inventory is mounting as homes take longer to sell. Sale prices are also in decline. But the National Association of REALTORS® reports that even though median home prices dropped slightly from June to July, they are still about 10% higher than at the same time last year.
According to Redfin Chief Economist Daryl Fairweather, “The housing market seems to be settling into an equilibrium now that demand has leveled off. We may still be in for some surprises when it comes to inflation and rate hikes from the Fed, but for now, an ease in mortgage rates has brought some relief to buyers who were reeling from last month’s rate spike. Although the number of sales is down considerably from last year, first time-homebuyers with not a lot of cash are welcoming the decline in competition, and anyone who intends to stay in their home for many years doesn’t need to worry about these short-term fluctuations in home prices.”
Redfin Deputy Chief Economist Taylor Marr commented on the relationship between the overall economy and the home market: “Whether we label the current economy a recession doesn’t matter much except for sentiment. The under-the-hood stats on consumption, real income and inflation-significantly worsened last quarter. Weaker economic growth and poor consumer sentiment are weighing on both homebuyers and sellers. The upside is that mortgage rates fall when the potential for economic growth is weak. This could help bring more rate-sensitive homebuyers off the fence to move forward with a purchase.”
Simply stated, higher interest rates mean higher monthly mortgage payments. A $400,000 home purchased at a 5.10% interest rate will have a monthly mortgage payment of around $2,172 before taxes, insurance and other loan costs. At a rate of 6%, the monthly payment for the same home increases to $2,398. For many borrowers, that divide is the difference between qualifying for a home or not. To close the gap, buyers may have to downsize or move further from cities into lower-priced suburbs.
Redfin’s key takeaways about the housing market for 400-plus U.S. metro areas:
(Data covers the four-week period ending July 24. Redfin’s weekly housing market data goes back to 2015.)
- The median home sale price increased to $384,871, up 9% year over year, the slowest growth rate since August 2020.
- The median asking price of newly listed homes increased 14% year over year to $395,925, but was down 3% from the all-time high set during the four-week period ending May 22. Last year during the same period median prices were down just 1.1%.
- The monthly mortgage payment on the median asking price home hit $2,336 at the current 5.3% mortgage rate, up 42% from $1,648 a year earlier, when mortgage rates were 2.8%.
- Pending home sales were down 15% year over year.
- New listings of homes for sale were down 6% from a year earlier.
- Active listings rose 4% year over year-the largest increase since August 2019.
- 40% of homes that went under contract had an accepted offer within the first two weeks on the market, down from 45% a year earlier.
- 27% of homes that went under contract had an accepted offer within one week of hitting the market, down from 32% a year earlier.
- 47% of homes sold above list price, down from 53% a year earlier.
- The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, declined to 101.1%. In other words, the average home sold for 1.1% above its asking price. This was down from 102% a year earlier.
To view the full report, including charts and methodology, visit: https://www.redfin.com/news/housing-market-update-some-demand-returns/
The Mortgage Bankers Association predicts that mortgage rates will end 2022 at 4.8% and decline gradually to 4.6% by 2024 as spreads narrow.
QuickDraw is the go-to fund control partner for residential, commercial and industrial construction projects of every size, style and price point. From coast to coast, QuickDraw works to make the fund disbursement process a positive experience for all, with an array of related services, including: Fund Control, Site Inspections, Cost Reviews and Portfolio Management.