The number of homes for sale has declined from pre-COVID-19 pandemic levels, with high mortgage rates discouraging prospective sellers from putting their properties on the market, said real estate brokerage Redfin.
There are now 39 percent fewer homes for sale on the market compared to five years ago in June 2018, according to a June 15 press release from Redfin. The brokerage firm blamed the inventory crunch on a “homebuilding slump” that has existed for more than a decade as well as mortgage rates shooting up after declining during the pandemic. Since 2021, mortgage rates have “more than doubled,” landing close to 7 percent this week, it said.
The low mortgage rates in 2020 and 2021 had triggered a homebuying boom that ended up depleting the inventory. And when the rate started moving up at the beginning of 2022, many prospective home sellers backed off from the market, which failed to fill up the “inventory hole.”
The elevated rates in the current market are discouraging homeowners from selling their properties, Redfin argues.
In a June 14 press release, the real estate brokerage pointed out that 91.8 percent of U.S. homeowners with mortgages have interest rates below 6 percent. According to data from Freddie Mac, the weekly average interest rate on a 30-year fixed-rate mortgage was 6.69 percent for the week ending June 15.
“High mortgage rates are a double whammy because they’re discouraging both buyers and sellers—and they’re discouraging sellers so much that even the buyers who are out there are having trouble finding a place to buy,” said Redfin Deputy Chief Economist Taylor Marr.
Fed and Mortgage Rates
Since April 2022, the Federal Reserve has pushed up its benchmark interest rate from 0.5 percent to a range of 5 to 5.25 percent. This has been a driving force for mortgage rates to surge over the past year.“The Fed’s indication that there are more rate hikes to come is not what homebuyers want to hear. It’s likely to keep mortgage rates elevated and may even push them up a bit,” said Redfin Economics Research Lead Chen Zhao.
Mortgage Loan Demand
While mortgage rates remain elevated, they have slightly cooled over recent weeks, with the 30-year fixed-rate mortgage rate coming down from 6.79 percent for the week ending May 31 to 6.69 percent for the week ending June 14.“Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve,” said Sam Khater, Freddie Mac’s chief economist in a June 15 news release.
During this period, mortgage loan applications have risen. The Market Composite Index, a measure of mortgage loan application volume, jumped by 7.2 percent on a seasonally adjusted basis for the week ending June 9 compared to a week earlier, according to a June 14 news release by the Mortgage Bankers Association (MBA).
“Mortgage rates declined for the second straight week,” said Joel Kan, MBA’s vice president and deputy chief economist. “Mortgage applications were up over the week, but remained well below levels from a year ago.”
“Rates that are still more than a percentage point higher than a year ago, and low for-sale inventory continue to constrain home buying activity in many markets.”
