If you’ve been following the real estate market, you know the hot topic of the year is mortgage rates. The Agency’s mortgage partner New American Funding is lending their insight to the month’s economic news and unpacking what it all means for agents, homebuyers and sellers.
Mortgage Rate Report
Although mortgage rates have stabilized, they experienced stubborn upward pressure for the past few months. Inflation has been coming down at a relatively fast pace with the latest CPI release showing inflation at 4.0% in May. However, the inflation rate is still above the Federal Reserve’s target of around 2%, causing mortgage rates to remain elevated for the near future.
Looking forward, we anticipate rates may experience a slight decline by the end of the year, especially if inflation continues to fall and the economy begins to weaken. Despite this higher interest rate environment, demand remains high in most markets as we are seeing multiple offers on many newly listed properties.
Even with tight monetary policy and many predicting a recession, the economy remains strong. The unemployment rate rose slightly to 3.7% in May, but 339,000 jobs were created and average hourly earnings rose 0.3% for the month.
This strength is helping to support the housing market, and although many economists predict a recession as early as the second half of 2023, many are adjusting their expectations and anticipating a much shallower recession. Having a shallower recession bodes well with the housing market as mortgage rates may then start to decline, but homebuyers should still have enough strength to keep up demand.
While the housing market appears to be stabilizing, the underlying data shows the housing market has broadly been strong throughout the country with a few cities experiencing a slight decline. Mortgage rates have steadied, but they haven’t seen any significant decline in the past months, sidelining some buyers and sellers. Even with a predicted recession, the economy is continuing to show strength. Within the past few months, prices have been steadily increasing. The month-over-month price shows a 0.5% increase in April, showing the resilient demand from buyers and low supply that exists in the market.
Showing the lack of supply in the market, new home inventory accounted for 31% of the total inventory in May, while it historically accounts for around 10%. Many homeowners are still reluctant to sell their homes given their low mortgages. 82.4% of homeowners with mortgages have a mortgage rate below 5% and 62% with a mortgage rate below 4%. Therefore, homeowners are reluctant to sell their homes that are locked into historically low interest rates resulting in short supply while demand has remained strong. This will likely continue putting upward pressure on home prices.
Thinking of making a move? Connect with your agent and our team at New American Funding to learn more.
Written by Nicole Montgomery.