This week’s news that the Federal Reserve (Fed) is modestly hiking interest rates and may pause them sooner than anticipated brought mortgage rates down for the second week in a row, according to a new report from Redfin.
Overall, the Fed’s announcement doesn’t change Redfin’s overall housing-market outlook for this spring; mortgage rates are likely to temporarily decline but not plummet, and demand is likely to swing up and down based on fluctuations in rates and availability of homes on the market.
“We’re not seeing the typical spring seasonal increase in business,” Boise Redfin agent Shauna Pendleton said in a release. “There’s no seasonality; homebuyers and sellers are hyper-focused on mortgage rates. If rates end the week down, all of a sudden buyers are out there making offers. If rates end the week high, buyers disappear.”
This week, demand ticked up as declining mortgage rates brought buyers some relief. Average daily rates dropped from 6.75 percent to 6.45 percent after the Fed’s announcement, and the average weekly rate dipped to 6.42 percent, bringing the typical homebuyer’s monthly housing payment down from the peak it reached two weeks ago, according to Redfin.
Mortgage-purchase applications are up 17 percent from a month ago after increasing for the third straight week, and the number of homebuyers contacting Redfin agents for tours and other services rose this week.
However, Redfin data shows prospective buyers are struggling with tight supply, as sellers are typically slower to return than buyers. New listings of homes for sale fell 22 percent from a year earlier during the four weeks ending March 19, one of the biggest declines since the housing market nearly ground to a halt in the beginning of the pandemic. Many would-be sellers are reluctant because they want to hang onto a low mortgage rate—nearly all homeowners have a rate under 6 percent—and because they’re also buyers struggling with low inventory, according to Redfin.
Because there’s so little to choose from, homebuying speed is picking up even while rates stay high and demand remains low compared with last year. Nearly half of homes that went under contract had an accepted offer within two weeks of hitting the market, the highest share since June. That’s partly due to typical seasonality, but lack of inventory is causing homes to sell faster than expected when buyers are contending with 6 percent-plus rates, Redfin data shows.
Competition could pick up more if mortgage rates stay closer to 6 percent than 7 percent, which is more likely after the Fed’s announcement.
“The banking-industry chaos of the last few weeks likely prevented the Fed from making a big, inflation-fighting hike this week that could have sent mortgage rates soaring,” Redfin Chief Economist Daryl Fairweather said. “They kept the hike small partly because banking turmoil naturally combats inflation. As a result, the housing market is in a better place now than it was a few weeks ago.
“Mortgage rates are unlikely to increase again unless the next inflation report is worse than expected,” Fairweather continued. “Sidelined buyers should be on high alert in the coming days and weeks, which could offer a window to lock in a rate closer to 6 percent than 7 percent.”