Housing Market ‘Sluggish’ as ​​Mortgage Rates Continue to Rise

Housing Market ‘Sluggish’ as ​​Mortgage Rates Continue to Rise

Roger Pettingell Sarasota Real Estate

Fixed mortgage rates continued to edge upward this week, putting added pressure on summer homebuyers who are burdened with steep borrowing costs and stubbornly high home prices. The sole exception was adjustable mortgage rates, which dropped slightly from the previous week.

  • 30-year fixed: 5.54% with 0.8 point (up from 5.51% a week ago, up from 2.78% a year ago).
  • 15-year fixed: 4.75% with 0.8 point (up from 4.67% a week ago, up from 2.12% a year ago).
  • 5/1-year adjustable: 4.31% with 0.3 point (down from 4.35% a week ago, up from 2.49% a year ago).

Erika Giovanetti

“The housing market remains sluggish as mortgage rates inch up for a second consecutive week. Consumer concerns about rising rates, inflation and a potential recession are manifesting in softening demand. As a result of these factors, we expect house price appreciation to moderate noticeably.”

– Sam Khater, Freddie Mac’s chief economist, in a July 21 news release

The Mortgage Bankers Association also revised its quarterly forecast this week to factor in rising rates. While it previously predicted that 30-year fixed mortgage rates would average 5% in 2022, that number rose to 5.2% in its latest report. The industry research group still expects average mortgage interest rates to decline in 2023 and 2024.

In the meantime, rates are expected to continue climbing as the Federal Reserves struggle to rein in soaring inflation, as noted in last week’s mortgage column.

“If consumer price inflation continues to rise, then mortgage rates will move higher,” says Lawrence Yun, chief chief at the National Association of Realtors, in a statement. “Rates will stabilize only when signs of peak inflation appear. If inflation is contained, then mortgage rates may even decline somewhat.”

This year’s higher rates are having a palpable impact on real estate activity. Existing-home sales fell 5.4% between May and June, NAR data shows. Compared with one year ago, sales are 14.2% lower. This marks the fifth consecutive month of declining existing-home sales. And while slower home sales might suggest a drop in demand, the effect hasn’t been felt on home prices just yet: NAR also found that the average sales price for existing homes continued to rise to $536,200 last month, a record high.

Erika Giovanetti

Indicator of the Week: Priced Out

To address the housing affordability challenges facing both homebuyers and renters, the Senate Committee on Banking, Housing and Urban Affairs held a hearing titled “Priced Out: The State of Housing in America” ​​on July 21.

The committee heard testimony from a panel of housing market experts to identify legislative action that could combat rising housing payments. One short-term solution proposed by Peggy Bailey, vice president for housing policy at the Center on Budget and Policy Priorities, is to increase the availability of housing assistance vouchers and tax credits for low-income renters.

“Closing the housing affordability gap will require a long-term strategy, but progress can be made in the short term,” writes Bailey in her testimony. “Most immediately, Congress should fund at least the 140,000 new vouchers included in the 2023 Transportation-HUD funding bill passed by the House Appropriations Committee, together with adequate funding for existing vouchers to cover rising housing costs.”

But this idea was dismissed by Douglas Holtz-Eakin, president of the American Action Forum, who says that “government intervention in housing has frequently done more harm than good.” Instead, he suggests in his testimony that Congress could help alleviate long-term supply issues by simplifying the building permit process, removing land-use restrictions and reducing tariffs on imported housing construction materials, particularly Canadian lumber.

While Democrats and Republicans at the hearing agreed that solving the housing affordability crisis is a top priority, it’s unclear how lawmakers will move forward to address the problem in a meaningful way. NAR’s Yun, who also served as a witness at last Thursday’s hearing, doesn’t foresee relief in the near term.

“Historic undersupply in the market, combined with continued demand, will likely drive ongoing issues with affordability for many Americans,” Yun says before the committee. “Any short-term price adjustments, if they occur, will be less consequential compared to the immense longer-term housing affordability challenges we face as a country.”

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