But wait… I haven’t seen anything yet. The impact of today’s Holy-Moly mortgage rates won’t show up in sales data for a few months. Here’s why.
By Wolf Richter for WOLF STREET.
Soaring mortgage rates – the result of the Fed’s future telegraphed crackdown on inflation – should sooner or later have an impact on the crazy housing bubble. We knew it. Today, the average 30-year fixed mortgage rate climbed well above 5%.
For example, the Mortgage Bankers Association reported this morning that its weekly 30-year fixed rate measure jumped to 5.2%, the highest since April 2010, a full two percentage points higher than two years, “causing a setback or delay in home buying demand,” the MBA said. “Home buying activity has been volatile in recent weeks and has yet to experience the typical recovery for this time of year.”
Given the huge increase in real estate prices, to be financed with these much higher mortgage rates, well, we know how it goes: sales will go down because there are fewer buyers who can still afford to buy, and inventory will go up because there are fewer sales and because the restless multi-home owners who have clung to these homes to get on the market are starting to put them on the market.
So today the National Association of Realtors reported that sales of used homes – houses, condos and townhouses – fell to their lowest since June 2020, down 4.5% from a year ago, the eighth consecutive month of decline year on year, even as the supply of homes put up for sale rose.
The NAR expects home sales to “contract 10%” this year, he said, and he blamed mortgage rates and inflation: “The housing market is starting to feel the pinch. impact of sharply rising mortgage rates and rising inflation weighing on purchasing power.”
But wait… We haven’t seen anything yet. It will be two months before the effects of today’s Holy-Moly mortgage rates show up in the data.
Today’s sales figures are based on sales closed in March, meaning many deals were closed in February with mortgage rate freezes from February or January or even earlier when mortgage rates were a lot lower. In February, the average 30-year fixed rate rose from 3.7% to 4.1%. In January, it was around 3.5%.
Today and in the weeks to come, many homebuyers still have rate lock-ins with lower rates compared to previous months. They can still buy with those lower mortgage rates. But buyers entering the market now and getting a rate lock starting today are looking at mortgage rates above 5%.
In other words, we won’t see the bulk of the effects on home sales from today’s Holy-Moly mortgage rates until May sales data is released in June.
Sales of single-family homes fell 2.7% in March and 3.8% year-over-year to a seasonally adjusted annual rate of 5.13 million homes, the lowest since June 2020.
Condo sales fell 3.0% in March and 9.9% year-over-year to a seasonally adjusted annual rate of 640,000 condos, the lowest since August 2020.
By regionthe percentage change in the seasonally adjusted annual rate of total home sales in March compared to February, and year over year (yoy):
- Northeast: -2.9% compared to February, -11.8% year-on-year.
- Midwest: -4.5% from February, -3.1% YoY.
- South: -3.0% compared to February, -3.0% year-on-year.
- West: no change in February, -4.7% year on year.
Supply of homes for sale rose to 2.0 months, the second month in a row of increases, from January’s record low (data via Y-Charts).
The median price was up 15% from a year ago to $375,300. The year-over-year spikes had peaked in May and June 2021 at over 23% (data via YCharts):
Investors’ share of sales remained roughly in the same range. Individual investors or buyers of second homes, which constitute many cash sales, according to the NAR, accounted for 18% of transactions in March, compared to 19% in February and 22% in January, but up from March 2021 ( 15% ).
All-cash sales hit 28% of all transactions, down from 25% in February and 23% in March 2021. As overall sales decline due to rising mortgage rates and sales to homebuyers who have to obtain a mortgage are decreasing in particular because they can no longer afford it, the percentage share cash sales automatically increase, even if the cash sales themselves do not increase.
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