Last week marked a significant development in the housing market as mortgage rates surpassed 7 percent for the first time since November. This uptick in rates appears to have contributed to a notable decline in existing home sales in March, following two robust months prior. The surge in closings experienced in January and February was likely a result of rates falling more than one percent at the end of 2023. This underscores the enduring influence of interest rates on sales activity, even within a market known to consistently see a substantial proportion of cash transactions.
Despite the rise in rates, Brown Harris Stevens Chief Economist, Greg Heym, offers a reassuring viewpoint for prospective buyers. He points out that while mortgage rates have increased, they remain nearly 1 percent lower than the average rate over the past 50 years. Although rate cuts were expected this year, Heym no longer sees that happening, citing the Federal Reserve's struggle to bring inflation down to their 2 percent target, compounded by recent economic data indicating increasing challenges ahead. However, he emphasizes that this doesn't imply mortgage rates won't fluctuate, as demonstrated in the chart below. You will find the data illustrates significant rate movement since July, even though the Fed hadn’t touched rates.
Some additional insights from the latest report:
Inventory saw a 4.7 percent uptick to 1.11 million homes last month.
Despite this increase in inventory, prices were still 4.8 percent higher than the previous year.
Buyers continue to grapple with the challenge of both higher prices and rising mortgage rates.
Turning to the brighter side, Heym reminds us of the current strength of our economy. Contrary to expectations, including those held by many economists like Heym himself, a recession hasn't materialized. Instead, we find ourselves in the midst of a thriving economy with nearly 9 million job openings. Another aspect worth noting is the simultaneous increase in borrowing rates and savings rates. Previously, when mortgage rates hovered around 3 percent, savings account interest rates were around a mere 0.25 percent. Presently, however, money market rates exceed 5 percent, offering a significant boost to savers.