Recession fears may prove to be the elusive cure for rising mortgage rates.
“The impact of the Fed’s inflation-curbing strategy is seen clearest in the housing market as prospective buyers take a big step back, slowing sales,” according to Redfin Deputy Chief Economist Taylor Marr.
Marr added, ironically, that “it may take renewed fears of a recession” to actually bring some relief to potential homebuyers who are facing the highest mortgage rates since 2008.
Data from government-sponsored home mortgage purchaser Freddie Mac showed the average 30-year fixed rate mortgage passed 6% in the week ended Sept. 15.
INFLATION HITS RENTAL MARKET AS HIGHER MORTGAGE RATES, LIMITED SUPPLY PUSHES UP PRICES: REAL ESTATE EXPERT
The Federal Reserve has been trying to tamp down decades-high inflation without triggering a recession through a series of aggressive interest rate increases. This month, the central bank raised its target interest rate by 75 basis points. The hike was the Fed’s third straight increase, following lifts in June and July. The move puts the key benchmark federal funds rate at a range of 3% to 3.25%, the highest since before the 2008 financial crisis. It also marks the fifth consecutive rate increase this year.
The steady rise in interest rates has left current homeowners reluctant to buy new homes because it would mean abandoning a cheaper mortgage for a more expense one. Current rates have also discouraged turning renters into homebuyers.
Both trends have kept the supply of available homes low. Redfin data shows there were 1,767,543 homes for sale in the U.S. in August, up 3.4% year over year. The number of newly listed homes was 590,549, down 19.1% year over year.
“As a result, home sale prices have picked up in recent weeks,” Marr added.
What’s more, some economists are projecting that the average long-term U.S. mortgage rate, which climbed to 6.29% last week, could soar past 7%. National Association of Realtors Chief Economist Lawrence Yun expects to see mortgage rates close to 7% in the coming months.
IS CURRENT HOUSING MARKET SLOWDOWN SIMILAR TO 2008 CRASH?
Compass realtor Daniel Karp told FOX Business that “with the rise of interest rates, the market will have to reset to a new normal, and leverage will continue to shift towards buyers from where we were.”
While some buyers have put their searches on hold as rates have gone up and recession fears loom, “those who can stomach the uncertainty have a real opportunity in this market,” he added.
Karp projected that sales volume will continue to decline, which will force sellers to bring their prices down.
This means, however, that buyers will have more choices, more time to make decisions and, ultimately, “more negotiation power,” according to Karp.
Six months ago it was a different story.
“Due to high demand, some buyers didn’t stand a chance in bidding wars,” he said. “Now they have an opportunity to use the state of the economy as leverage, negotiate and make a deal.”
If rates fall next year and the financial markets improve then “there will be pent-up demand which will lead to buyer competition and prices will go up again,” he added.
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