This week, the Federal Reserve chairman Jerome Powell let down hopes of decreasing interest rates. His recent comments even suggest that rate cuts may not happen this year. After he remarked on inflation, mortgage rates have gone above 7%.
How Does this Affect the Spring Housing Market?
Higher mortgage rates not only increase borrowing costs for buyers but also push homeowners to delay selling their homes in the spring housing market. This reduces the growth of available homes for sale and drives up prices. Jonathan Miller, president of Miller Samuel Inc., had hoped for a more positive year in January 2024. However, with mortgage rates remaining as high as ever, he is anticipating a stagnant market ahead.
Homebuyers had started the year with optimism. However, strong job growth and unexpected inflation increases have dimmed those hopes of reduction in mortgage rates in the spring housing market.
Powell’s remarks in Washington discussed the need to give current policy more time to make an impact. This is based on labor market strength and progress in controlling inflation. This caused the 10-year Treasury yield, influencing mortgage rates, to rise above 4.5%. Mark Fleming, chief economist at First American Financial Corp., said that some experts are now discussing the potential for rates to reach 5% and even considering the possibility of no rate cuts at all.
Over 75% of homeowners with mortgages have rates secured below 5%, and nearly 60% have rates below 4%, per Redfin’s study. Miller notes a significant gap between those who secured rates during the pandemic and current rates, around 7.5%, making it difficult for them to justify selling their homes in the upcoming spring housing market. The reluctance of the Federal Reserve to introduce rate cuts might result in less housing inventory in the spring housing market.
For someone who locked in a mortgage rate in 2020 or 2021, buying the same house today would mean paying an extra $804 each month, according to Intercontinental Exchange Inc. To afford a pricier house, they would have to pay over $1,773 monthly on average. In the past, such an upgrade only demanded $400 more monthly. Looking at housing market trends in 2024 will push homeowners to stick with their current homes.
Limited housing supply is also increasing home prices. Although the current housing market trends in 2024 have seen a decrease of 4.3% in home sales sales last month, it has witnessed an increase in prices by 4.8%, as reported by the National Association of Realtors.
Buyers facing higher mortgage rates can still find opportunities in the housing market trends in 2024. According to Danielle Hale, chief economist for Realtor.com, they may face less competition in the current spring housing market, making it easier to have their offers accepted.
Additionally, the housing market trends in 2024 might see sellers being more open to negotiation compared to last year. A recent Realtor.com survey revealed fewer sellers are looking forward to bidding wars or prices above asking.
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