Today’s housing market is a toxic mix of high mortgage rates, high prices, tight supply and strangely strong pent-up demand — and it’s scaring off buyers and sellers alike.
Prices were already high, driven by supercharged demand during the height of the Covid-19 pandemic. Now the popular 30-year fixed mortgage rate is at 8%, the highest in decades, making things even tougher. Mortgage demand is at its lowest point in nearly 30 years.
“I think it’s painful. I think it’s ugly,” Matthew Graham, chief operating officer at Mortgage News Daily, said on CNBC’s “The Exchange” on Thursday.
Would-be sellers, meanwhile, are trapped. They have little desire to trade the 3% rate they currently have for an 8% mortgage rate on a new purchase.
“I don’t think anybody in my community of mortgage originators would disagree that in many ways, this is worse than the great financial crisis in terms of volume and activity,” MND’s Graham said.
He’s also unsure when the market will see a decline in rates. “But we do hear a chorus of Fed speakers, especially last week, in a very notable way, saying that they are restrictive and that they can wait and see what happens with the policy filtering through to the economy,” he said.
Prices are a different story.
“Prices look to be flat from this point onwards at an 8% rate, despite the housing shortage,” added Lawrence Yun, chief economist for the NAR.
Yun noted that metropolitan markets with faster job growth and relatively affordable prices, however, will see an upswing in sales. He points to Florida markets such as Tampa, Jacksonville and Orlando, as well as Houston, Texas, and Memphis, Tennessee.
Buyers today will likely get the best deals from homebuilders, especially the large production builders such as Lennar and D.R. Horton. The builders are helping with affordability by buying down interest rates for their customers. This is something they have not typically done in the past — at least not at this scale.
For those still wanting to upgrade to a bigger home or downsize to a smaller one, they are caught in a conundrum.
Prices are still rising due to the supply and demand imbalance, but sellers are being more flexible. So a buyer could purchase now at the higher rates and hope to get a break on the price, or they can wait until rates drop.
But when they do, there is likely going to be a flood of demand, resulting in bidding wars.