Home price appreciation
is slowing. Consumer sentiment about the housing market is
at a five-year high.
To cap it all off, mortgage rates have continually fallen throughout 2019 to date. Currently, the 30-year fixed-rate mortgage
is averaging 3.82%, roughly a two-year low, according to Freddie Mac. So far this year, mortgage rates have only increased on a weekly basis six times.
Historically,
that’s been a recipe for a home-buying frenzy. “We are in an extremely
interest-rate-sensitive housing market,” said Daren Blomquist, vice
president of market economics at Auction.com.
In the past, home
buying activity has gone up when rates have gone down, and vice versa.
“There’s a lot of hopefulness that cycle will repeat in 2019,” Blomquist
said.
Don’t miss: With mortgage rates at 2-year lows, here’s how to decide whether to refinance your home loan
And
yet, consumers haven’t shown much interest in buying homes these days.
Last week, mortgage applications for home purchases only rose 10% from
the previous week, despite mortgage rates being at a two-year low. And
the week before that, mortgage applications for home purchases actually
dropped by 2%, according to data from the Mortgage Bankers Association.
The most recent data for home sales isn’t much more positive. Pending home sales
fell for the 16th consecutive month
in April, according to data from the National Association of Realtors.
Economists had predicted a 0.5% increase; instead sales dropped by a
seasonally adjusted 1.5%.
So why haven’t home sales rebounded? Here’s what housing market experts had to say:
Move-up buyers are facing a ‘triple whammy’
In recent years, some have suggested that there could be a large swath of homeowners
who were “rate-locked.”
The argument goes that many people who already own their homes are
sitting on extremely low interest rates — and the higher mortgage rates
that were the norm throughout much of last year acted as a deterrent
keeping them from shopping for a new house.
If that were broadly
true, though, you would expect home sales to rev up more than they have.
“Rates are clearly not the only factor people consider,” said Danielle
Hale, chief economist at Realtor.com.
(Realtor.com is operated by News Corp
NWSA, -0.04%
subsidiary Move Inc., and
MarketWatch is a unit of Dow Jones, which is also a subsidiary of News
Corp.)
Interest rates are just one
piece of the puzzle for move-up buyers, those who already own a home and
are looking to buy a larger or otherwise more expensive property. While
the pace of price appreciation has slowed, home prices are nevertheless
at all-time highs across many housing markets nationwide, offsetting
the savings a move-up buyer could expect thanks to today’s interest
rates. (Not to mention that many of today’s homeowners who bought their
homes after the housing crisis have even lower mortgage rates than
what’s on offer today.)
Making affordability matters worse,
inventory remains quite constrained except at the luxury end of the
market. As a result, move-up buyers have few options of properties to
move to and will face more competition for homes, which can raise
prices.
And then there is the fallout from the recent changes to
the tax code. Current homeowners are grandfathered into the previous
mortgage interest deduction, which is higher than what consumers can get
nowadays. Plus, would-be move-up buyers may be wary of higher property
taxes, now that the deduction for state and local taxes has been capped.
“You’re
facing a triple-whammy right now,” said Rick Sharga, a mortgage
industry veteran and CEO of CJ Patrick Company, a real-estate and
financial services consulting firm. “A lot of the financial incentives
that a move-up buyer would have had a couple years ago no longer exist.”
Read more: Trump’s trade war with China is the last thing an already unsteady U.S. housing market needs right now
First-time home buyers have nowhere to go
In
many ways, first-time home buyers stand to benefit most from today’s
lower mortgage rates because of the real savings they represent.
B
Home price appreciation
is slowing. Consumer sentiment about the housing market is
at a five-year high.
To cap it all off, mortgage rates have continually fallen throughout 2019 to date. Currently, the 30-year fixed-rate mortgage
is averaging 3.82%, roughly a two-year low, according to Freddie Mac. So far this year, mortgage rates have only increased on a weekly basis six times.
Historically,
that’s been a recipe for a home-buying frenzy. “We are in an extremely
interest-rate-sensitive housing market,” said Daren Blomquist, vice
president of market economics at Auction.com.
In the past, home
buying activity has gone up when rates have gone down, and vice versa.
“There’s a lot of hopefulness that cycle will repeat in 2019,” Blomquist
said.
Don’t miss: With mortgage rates at 2-year lows, here’s how to decide whether to refinance your home loan
And
yet, consumers haven’t shown much interest in buying homes these days.
Last week, mortgage applications for home purchases only rose 10% from
the previous week, despite mortgage rates being at a two-year low. And
the week before that, mortgage applications for home purchases actually
dropped by 2%, according to data from the Mortgage Bankers Association.
The most recent data for home sales isn’t much more positive. Pending home sales
fell for the 16th consecutive month
in April, according to data from the National Association of Realtors.
Economists had predicted a 0.5% increase; instead sales dropped by a
seasonally adjusted 1.5%.
So why haven’t home sales rebounded? Here’s what housing market experts had to say:
Move-up buyers are facing a ‘triple whammy’
In recent years, some have suggested that there could be a large swath of homeowners
who were “rate-locked.”
The argument goes that many people who already own their homes are
sitting on extremely low interest rates — and the higher mortgage rates
that were the norm throughout much of last year acted as a deterrent
keeping them from shopping for a new house.
If that were broadly
true, though, you would expect home sales to rev up more than they have.
“Rates are clearly not the only factor people consider,” said Danielle
Hale, chief economist at Realtor.com.
(Realtor.com is operated by News Corp
NWSA, -0.04%
subsidiary Move Inc., and
MarketWatch is a unit of Dow Jones, which is also a subsidiary of News
Corp.)
Interest rates are just one
piece of the puzzle for move-up buyers, those who already own a home and
are looking to buy a larger or otherwise more expensive property. While
the pace of price appreciation has slowed, home prices are nevertheless
at all-time highs across many housing markets nationwide, offsetting
the savings a move-up buyer could expect thanks to today’s interest
rates. (Not to mention that many of today’s homeowners who bought their
homes after the housing crisis have even lower mortgage rates than
what’s on offer today.)
Making affordability matters worse,
inventory remains quite constrained except at the luxury end of the
market. As a result, move-up buyers have few options of properties to
move to and will face more competition for homes, which can raise
prices.
And then there is the fallout from the recent changes to
the tax code. Current homeowners are grandfathered into the previous
mortgage interest deduction, which is higher than what consumers can get
nowadays. Plus, would-be move-up buyers may be wary of higher property
taxes, now that the deduction for state and local taxes has been capped.
“You’re
facing a triple-whammy right now,” said Rick Sharga, a mortgage
industry veteran and CEO of CJ Patrick Company, a real-estate and
financial services consulting firm. “A lot of the financial incentives
that a move-up buyer would have had a couple years ago no longer exist.”
Read more: Trump’s trade war with China is the last thing an already unsteady U.S. housing market needs right now
First-time home buyers have nowhere to go
In
many ways, first-time home buyers stand to benefit most from today’s
lower mortgage rates because of the real savings they represent.
Between
May 2018 and May 2019, the median U.S. home listing price rose to
$315,000 from $297,200, according to data from Realtor.com. But a
homeowner who makes a 20% down payment could expect to spend nearly $45
less on monthly mortgage payments, for an annual savings of more than
$500, thanks to today’s lower rates.
But lower-rates haven’t
stirred up activity among existing homeowners. “If people aren’t moving
up, that tier of housing they’re living in isn’t available to people who
are starting out,” Sharga said.
Forecasts don’t provide much comfort
Real-estate buyers remain upbeat about what the rest of 2019 holds.
Throughout
the year, there has been a substantial increase in investors purchasing
homes at foreclosure auctions, Blomquist said. “These are typically
folks who are going to flip homes,” he said. “And they are counting on
the market to bounce back.”
Also see: Home flipping rate hits 9-year high — and that could foretell troubles in the housing market
Whether
low interest rates will play a role remains to be seen though.
Economists predict that the Federal Reserve will soon cut rates —
mortgage rates follow the path of the 10-year U.S. Treasury note
TMUBMUSD10Y, -0.51%
— but that interest rate cut
may already be baked into the mortgage rates currently on offer.
A lot also depends on the broader state of the economy and namely, whether the trade war will continue.
“It’s
really difficult to forecast where rates are going to go right now
because there’s so much uncertainty,” Hale said. “Anytime there’s a lot
of uncertainty that just sets the market up for disappointment.”etween
May 2018 and May 2019, the median U.S. home listing price rose to
$315,000 from $297,200, according to data from Realtor.com. But a
homeowner who makes a 20% down payment could expect to spend nearly $45
less on monthly mortgage payments, for an annual savings of more than
$500, thanks to today’s lower rates.
But lower-rates haven’t
stirred up activity among existing homeowners. “If people aren’t moving
up, that tier of housing they’re living in isn’t available to people who
are starting out,” Sharga said.
Forecasts don’t provide much comfort
Real-estate buyers remain upbeat about what the rest of 2019 holds.
Throughout
the year, there has been a substantial increase in investors purchasing
homes at foreclosure auctions, Blomquist said. “These are typically
folks who are going to flip homes,” he said. “And they are counting on
the market to bounce back.”
Also see: Home flipping rate hits 9-year high — and that could foretell troubles in the housing market
Whether
low interest rates will play a role remains to be seen though.
Economists predict that the Federal Reserve will soon cut rates —
mortgage rates follow the path of the 10-year U.S. Treasury note
TMUBMUSD10Y, -0.51%
— but that interest rate cut
may already be baked into the mortgage rates currently on offer.
A lot also depends on the broader state of the economy and namely, whether the trade war will continue.
“It’s
really difficult to forecast where rates are going to go right now
because there’s so much uncertainty,” Hale said. “Anytime there’s a lot
of uncertainty that just sets the market up for disappointment.”
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