Despite recent decreases in mortgage rates, buying a home is expected to become more expensive amid economic uncertainty, according to an analysis by Realtor.com.
The average interest rate on a 30-year-fixed-rate mortgage dropped to 6.42% for the week ending March 23, a 0.18% decline from the previous week, according to Fredie Mac data. That rate is the lowest in more than a month, Realtor.com reported.
"It’s a small reprieve and much-needed break for homebuyers, but don’t look for it to last," Realtor.com said in its analysis. "When the Fed raises rates, mortgage rates usually rise in kind."
The Federal Reserve raised interest rates by 25 basis points on March 22 despite forecasts by economists who predicted the Fed would pause rate hikes in light of ongoing banking uncertainty.
"Economic conditions will keep upward pressure on rates," Realtor.com Economic Data Manager Sabrina Speianu said in her analysis.
This "will continue to present an affordability challenge for buyers and may keep some sellers, who are locked in at lower rates, waiting on the sidelines," Speianu continued.
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Home price growth is beginning to cool
The median listing price for a home was 6.3% higher year-over-year for the week ending March 18, Realtor.com reported. That marks the lowest sales-price growth rate since June 2020, Speianu said. For February, the median listing price for a home was $415,000, Realtor.com reported.
However, the typical sales price of homes in February was $363,000, a 0.2% year-over-year drop, according to a report by the National Association of Realtors. That represents the first such decline in 11 years, Realtor.com said.
Rates "are expected to remain elevated in the near term, which implies that home prices may continue to soften this spring season," Speianu said.
Some experts have predicted home prices will drop throughout the year. Home prices are expected to fall by 1.6% through December 2023, according to a panel of economists and housing experts surveyed by Zillow. Still, the panel expected home prices could regain momentum in 2024 and hold steady at an average rate of 3.5% per year.
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Down payments decline
Despite overall high mortgage rates, the typical down payment homebuyers have made declined to 10% from 14% year-over-year in January, according to Redfin.
The typical down payment a homebuyer made was $42,375 in January, the lowest level in nearly two years amid decreased competition and high mortgage rates, Redfin reported.
"The housing market is slow and there’s not much competition," Redfin said in its report. "Most offers for homes written by Redfin agents don’t face bidding wars. That’s a stark difference from the hyper-competitive housing market of 2021 and early 2022.
"Buyers no longer need to offer a big down payment to prove their financial stability and stand out from the crowd," the report continued. "Now that buyers often have the upper hand, they can offer an amount that works best for their individual circumstances."
Nonetheless, elevated inflation continues taking a toll on would-be homebuyers who may have to delay purchasing a home as they address other financial needs. But the current economic situation may give homebuyers stronger negotiating power, according to Redfin.
"One silver lining of high mortgage rates and economic turmoil is that they’ve slowed competition," Redfin Senior Economist Sheharyar Bokhari said in a statement. "That means buyers are often able to purchase a home without facing a bidding war and don’t need to fork over a huge portion of their savings for a down payment to grab sellers’ attention.
"Today’s buyers are also able to save money in other ways: Nearly half of sellers are offering concessions, like helping pay for a mortgage-rate buydown or covering closing costs, to attract buyers," Bokhari continued.
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