US long-term mortgage rates fall; more houses on the market

(Bloomberg) – US mortgage rates fell slightly for the third straight week.

The average for a 30-year loan was 5.09%, down slightly from 5.1% last week, Freddie Mac said in a statement Thursday.

Buyers have been given some respite in recent weeks from the massive hike in mortgage rates that has dominated this year. The cost of borrowing is still up almost 2 percentage points from the end of 2021, an increase that is slowly starting to impact the housing market. Nearly one in five sellers cut listing prices in the four weeks ended May 22, the highest since October 2019, Redfin Corp said. in a report last week.

“Mortgage rates have continued to fall this week but are still significantly higher than last year, affecting affordability and buying demand,” Sam Khater, Freddie Mac’s chief economist, said in the statement. “As we head into summer, the pool of potential home buyers has dwindled, supply is increasing and the housing market is normalizing. This is welcome news after an unprecedented market tightening in recent years.”

At the current 30-year average, a borrower with a $300,000 mortgage would be paying $1,627 a month, up $344 from late last year.

More houses are coming onto the market

Meanwhile, housing supply rose for the first time since June 2019, according to Realtor.com data, suggesting that US housing supply has reached an inflection point over the past month.

Active listings rose 8% year over year in May, likely due to new sellers and a slowdown in potential buyers who were deterred by high prices, Realtor.com said in a report Thursday. The biggest increases in new registrations were in the west and south, in cities like Austin, Texas and Phoenix.

Still, the rise in inventories doesn’t necessarily mean that the exuberance in the housing market is abating. Quotations remain 48.5% below their May 2020 levels and price increases have accelerated in recent months.

“While this real estate update is welcome news in a still underserved market, it has yet to hurt home price growth,” said Danielle Hale, Realtor.com’s chief economist, in the report.

The US median listing price rose to a record $447,000 in May after just surpassing $400,000 in March. And buyers bought faster than any month in Realtor.com’s historical data since July 2016.

Nonetheless, rising mortgage rates and a worsening economic outlook may have thinned out buyers and made the bidding war less ebullient. In an early sign, the rate of sellers cutting prices accelerated in May, Hale said.

Real estate prices continue to rise

Consumers have had to grapple with an increasingly difficult affordability situation in recent years as prices have soared during the pandemic. The S&P CoreLogic Case-Shiller index released on Tuesday suggested gains continued to accelerate over the year through March. Home price growth in 20 US cities increased for the fourth straight month, with Tampa posting the largest gains.

A measure of prices in those 20 cities rose 21.2% through March, after a 20.3% rise in February. All 20 cities reported double-digit price increases for the year ended March, and Tampa prices rose 34.8%, according to a statement. Boston saw prices jump 14.5% year over year. Only Chicago, New York City, Minneapolis and Washington, DC saw smaller increases.

“Those of us who were expecting the rate of growth in U.S. home prices to slow will have to wait at least a month longer,” Craig Lazzara, managing director at S&P Dow Jones Indices, said in the statement.

The index, based on research by economists Robert Shiller and Karl Case, is an important gauge of the health of the US housing market, in part due to its breadth of measurements across the US and more than 27 years of historical data.

“The strength in house prices may surprise given the rise in mortgage rates in recent months,” Matthew Pointon, a senior real estate economist at Capital Economics, said in a report to clients on Tuesday. “Note, however, that Case-Shiller calculates the average price of homes sold in the last three months (i.e. January to March) and back then, home demand was still strong.”

Nationally, prices rose 20.6%, but S&P Dow Jones Indices’ Lazzara warned a slowdown could be on the horizon.

“Mortgages are getting more expensive as the Federal Reserve has started raising interest rates, suggesting that the macroeconomic environment may not support extraordinary home price growth for much longer,” Lazzara said. “While it is safe to predict that gains will slow, timing the slowdown is more difficult.”

With inventories still tight, a complete slowdown in price growth is unlikely, according to Capital Economics’ Pointon. He expects annual growth to slow to about 9% by the end of this year.

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