Low Mortgage Rates Could Hurt First-Time Home Buyers for Years To Come

Record-low mortgage rates have been a boon for buyers on a budget. But they could make it harder for today and tomorrow's buyers to find a home. The post Low Mortgage Rates Could Hurt First-Time Home Buyers for Years To Come appeared first on Real Estate News & Insights | realtor.com®.

Low Mortgage Rates Could Hurt First-Time Home Buyers for Years To Come

Record-low mortgage interest rates have been a boon for buyers on a budget, even luring those who have been on the sidelines into the housing market. But that influx of buyers has made an already severe housing shortage worse—and the impact of those low rates on the housing supply is likely to reverberate well into the future.

First-time buyers, whose ranks have swelled with city refugees seeking more space in the suburbs, are now duking it out over an extremely limited number of affordably priced homes for sale—in the middle of both a pandemic and an economic recession.

As the economy recovers and rates rise over the next few years, many homeowners who bought or refinanced their mortgages this year may hold on to their properties longer. After all, who wants to take out a more expensive loan to buy a new home when the existing one will do?

That could hurt first-time buyers for years to come if there aren’t enough starter homes to go around.

“[If] rates move up and you want to trade up to a bigger home, you not only have to pay more for the bigger home, but you would also have to pay more to borrow money. That starts to make it less appealing to trade up,” says realtor.com® Chief Economist Danielle Hale. “There could be fewer entry-level properties for resale. It creates a scarcity of homes for first-time buyers.”

Rates averaged just 3.03% as of July 9 for a 30-year fixed-rate mortgage, according to Freddie Mac. Some lenders are offering rates in the high 2% range for the most qualified borrowers—leading to a crush of buyers and homeowners seeking to refinance their mortgages.

But as rates eventually tick back up again, even a single percentage point has the potential to add $100—or more—to a monthly mortgage payment and tens of thousands of dollars over the life of the loan. So it may seem more financially attractive to work with the home you have, especially if home prices continue to rise.

“They may wind up fixing up the homes they’re in and adding on to them, such as a bedroom or bathroom, as opposed to selling that one and moving to a new house,” says Rocke Andrews, president of the trade group National Association of Mortgage Brokers.

How mortgage rates affect housing inventory

This wouldn’t be the first time that homeowners appear to have held on to their homes longer because they were able to get a good mortgage rate. That’s what an analysis by mortgage data and analytics provider Black Knight found when looking at rates and home listings from 2013 to 2018.

“Homeowners who had low fixed-interest rates were the least likely to list their homes for sale,” says economist Andy Walden of Black Knight.

Homeowners debating upgrading their existing home or trading up to a new one will also likely take their home equity into consideration. Owners had a record nearly $6.5 trillion in equity available in the first quarter of 2020, according to Black Knight. That could be tapped for renovations rather than a down payment.

This could be problematic for today’s buyers—as well as the buyers of the future.

Even before rates hit new lows, the nation was in the throes of a housing shortage. A decade of underbuilding and a surge of older millennials and other buyers in the market had resulted in a challenging market for first-time buyers. Then the COVID-19 pandemic hit. Many homeowners weren’t comfortable allowing strangers in their abodes during a public health crisis, so they held off on listing or pulled the “For Sale” out of their yards.

As a result, the number of homes for sale was down 32% year over year in the week ending July 11, according to realtor.com data.

“Prior to the pandemic, we did see homeowners’ mobility trending lower over the last few years. We’d also seen an increase in home improvement spending,” says Joel Kan, an economist with the Mortgage Bankers Association, a trade group. “Low rates could play a part in this increased homeowner tenure.”

Future buyers shouldn’t start panicking

This doesn’t mean that folks planning on buying their first home a few years from now should worry just yet.

Builders could begin putting up more starter homes to meet the demand. And there will always be homeowners who need to move, whether they’re relocating for work or to be closer to family, want to downsize, or need more square footage to accommodate a growing family.

“People are always going to move, but less than if there was a [financial] incentive,” says Roland Weedon, president of Essex Mortgage, an Orange, CA–based chain of lenders.

The post Low Mortgage Rates Could Hurt First-Time Home Buyers for Years To Come appeared first on Real Estate News & Insights | realtor.com®.

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Home Sales Exceed Pre-Pandemic Levels for the First Time as Mortgage Rates Hit Another Record Low

For the first time, home sales are higher than before the pandemic due to low mortgage rates. With low inventory, homes sell fast and prices rise. The post Home Sales Exceed Pre-Pandemic Levels for the First Time as Mortgage Rates Hit Another Record Low appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.

Home Sales Exceed Pre-Pandemic Levels for the First Time as Mortgage Rates Hit Another Record Low

Key takeaways for the week ending July 5

  • Home sales were up 2% from pre-pandemic levels and are likely to continue rising; pending sales were up 10% during the same period.
  • Weekly average mortgage rates fell to a new low of 3.03%, fueling homebuyer demand.
  • New listings recovered to pre-pandemic levels for the third straight week, but can’t keep pace with buyer demand; the number of homes for sale was down 29% from last year.
  • Nearly half of homes that sold during the week spent two weeks or less on the market, making the market feel “chaotic” for buyers.
  • Low rates and low inventory pushed home sale prices up 7% from a year earlier.

With mortgage rates at a record low, pending sales and homebuyer demand remain above pre-pandemic levels

The housing market continued its recovery in the week ending July 5 despite the . For the first time, home sales exceeded pre-pandemic levels from January and February, up 2% on a seasonally adjusted basis. Demand is being propelled primarily by record low mortgage rates; the was down to 3.03% for the week ending July 9. 

“The industry is responding to an avalanche of applications for refinances and purchases.” said Rob Foos, a mortgage advisor with Redfin Mortgage in Boston. “A combination of rock-bottom rates plus pent-up purchase demand has resulted in the highest levels of purchase applications in about a decade.”

Several leading indicators suggest that home sales will continue to increase in the coming weeks; pending sales grew 10% from pre-pandemic levels on a seasonally adjusted basis and the Redfin home-buying demand index has hovered around 20% above the pre-pandemic levels for seven straight weeks. were also about 15% above pre-pandemic levels. 

Potential sellers worry about finding their next home

New listings were at their pre-pandemic levels for three straight weeks, up 1% on average on a seasonally adjusted basis. But there aren’t enough new listings to satisfy the strong homebuying demand. As a result, the total number of homes for sale was down 29% from a year ago. Redfin agents report that sellers are now rarely citing coronavirus concerns as a reason not to list, but more often cite the lack of homes for sale itself as the thing that’s holding them back. 

“Some of my clients are considering selling, but it’s a matter of finding a home they can buy,” said Redfin agent Thomas Wiederstein in Phoenix. “Even if they do find a home that checks all the boxes, many move-up buyers can’t buy a new home before they sell their current one. With bidding wars so common, it’s very hard to get an offer accepted that’s contingent on the sale of the buyer’s current home.”

Lack of homes for sale fuels competition

Buyers face competition more often than not, as for the second month in a row, and homes are going off-market quickly. The share of listings that went off market within two weeks stood at 45% this week, up from 35% a year ago. Shoshana Godwin, a Redfin agent in Seattle, is seeing a return to bidding wars and buyers waiving contingencies to make their offers more attractive. 

“We’re back to buyers waiving their rights to cancel the contract if something pops up during the inspection or they can’t get their loan approved. Buyers used to try to inspect the home before writing an offer, but now sellers are providing an inspection report upfront. That brings in even more bidders because they don’t need to spend $500 on an inspection just to make an offer,” Godwin said.

Redfin San Francisco agent Chad Eng describes a housing market that feels “chaotic” in the absence of pre-pandemic norms.

“Due to COVID-19, agents are scheduling back-to-back 15-minute in-person home tours instead of holding traditional open houses. If you miss your appointment, you’re out of luck. Sellers often set a deadline for buyers to submit offers so they can review all of their options at once, but now that there’s so much uncertainty, sellers who receive one strong offer are less willing to wait around to see what else trickles in. I’ve seen multiple sellers accept an offer before the deadline, meaning buyers who wait miss out on their shot at buying the home.”

With competition comes rising home prices. The average sale price for the week ending July 5 was $310,000, up 7% from a year ago. The big question is how high prices will go? Asking prices for newly listed homes continue to accelerate as well, rising 16% over the same week last year to $324,900. 

What’s ahead?

Right now the market shows no signs of slowing down, but it will face a new test at the end of July. Thanks to the CARES Act, roughly 30 million Americans are receiving an extra $600 in weekly unemployment benefits. That extra benefit is set to expire July 31, unless lawmakers pass an extension or new legislation to supplement income for folks who are out of work. 

The expiration of these enhanced unemployment benefits could adversely affect personal spending, a crucial component of the economy that makes up 68% of GDP. A pullback in consumer spending could hit industries outside of travel, service and hospitality which so far haven’t been as impacted during the pandemic. That’s notable because so far, highly-paid employees have been largely insulated from the recession and the high unemployment rate in service jobs has had a limited impact on housing demand. If job losses creep into new industries, all bets are off. 


For this report covering the week that ended on July 5, we are presenting seasonally adjusted data for pending sales, new listings and home sales. This week includes the last two days of June and typically sales are disproportionately large on the last day of the month. It also includes the independence day holiday which typically results in a decline in housing market metrics. Seasonal adjustment allows us to account for these peculiarities. Pre-pandemic levels of these metrics refers to their average seasonally adjusted levels during January and February 2020. The Redfin COVID-19 week housing market does not include these seasonally adjusted data (as of the publication date of this report). 

The post Home Sales Exceed Pre-Pandemic Levels for the First Time as Mortgage Rates Hit Another Record Low appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.

Source : Red Fin More   

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