Housing market warms a bit
Falling mortgage rates draw some homebuyers back in, but sellers fewer in number
Homebuyers are edging back into the market after being sidelined last year by a jump in borrowing costs and soaring housing prices.
Although mortgage rates are coming down — the average rate on the most common home loan fell to a five-month low this week, making purchases relatively more affordable — real estate experts say what matters more for buyers and sellers now is the state of the economy, which is especially hard to gauge.
“It’s jobs, jobs, jobs,” said Sam Khater, chief economist at mortgage-finance giant Freddie Mac. Although the economy is solid, “if all these recession forecasts come to fruition, it would be a big deal,” he added.
The U.S. economy grew at an annual rate of 2.9% in the fourth quarter of last year, the government reported last week, as Americans continued to spend despite stubbornly high inflation.
As part of their effort to tame rising consumer prices, Federal Reserve policymakers raised interest rates again Wednesday, the eighth increase in 11 months. Fed officials are trying to slow the economy enough to bring inflation back under control without inducing a severe recession.
The Fed’s actions have helped cool the once-hot housing market, but mortgage rates have recently started to fall again — partly on investors’ expectations that the central bank’s campaign of rate increases is nearing an end — which could spur more activity in the housing market. New-home sales, which are particularly sensitive to changes in mortgage rates, rose 2.3% in December from the month before, the Census Bureau reported last week.
Because stronger economic growth could lead the Fed to raise rates higher, and keep them elevated for longer, homebuyers and sellers face a tricky balance of their confidence in the economy and what that might mean for borrowing costs. They, like Fed officials, would like to see a so-called soft landing, in which the economy cools in such a way that inflation moderates but doesn’t slow so much that it makes a big-ticket purchase like buying a home more daunting than it already is.
The average rate on a 30-year fixed-rate mortgage fell to 6.09% this week, the mortgage finance giant Freddie Mac reported Thursday, down from 6.13% the week before. Rates had climbed to 7.08% in October, the highest level since 2002.
More homes are being sold at or below list price, but many sellers are not budging, said Nicole Bachaud, senior economist at Zillow, a site that estimates home values. New listings have slowed to a trickle, and homes are staying on the market for longer. Sales of existing homes fell 1.5% in December, the 11th consecutive monthly decline, according to the National Association of Realtors.
Industry watchers say that reluctant owners will be more likely to put their homes on the market if average mortgage rates fall another half a percentage point, to 5.5%.
“Five and a half is where people get really comfortable,” said Nicole Rueth, a senior vice president at OneTrust Home Loans, a lender based in Denver. Until then, she added, owners will be motivated to sell by personal circumstances: “I’m having a baby, I’m getting married, I need to downsize, I need to move for my job.”