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lite.cnn.com - on gopher - inofficial | |
ARTICLE VIEW: | |
/ | |
The spring homebuying season isn’t what it used to be, thanks to the | |
Fed | |
By Elisabeth Buchwald, CNN | |
Updated: | |
5:13 PM EDT, Tue April 30, 2024 | |
Source: CNN | |
Spring has undeniably been the best time to put your home on the | |
market. The ideal weather displays homes in the best light and the | |
timing makes it a more favorable season for people to move, especially | |
with the end of the school year. | |
But the Federal Reserve is throwing a wrench into the plans of many | |
would-be homebuyers. | |
A few months ago, rate cuts, which would help lower mortgage rates, | |
seemed like a sure shot by now as inflation continued to get closer to | |
the Fed’s 2% target month after month. | |
That progress has dissipated with heating up again. That’s left | |
central bankers with few options other than keeping interest rates at | |
their current multi-decade highs for even longer, or . | |
All that has caused the spring homebuying season to take a timeout — | |
and could spell trouble for the remainder of the year. | |
“Higher rates are curtailing inventory,” Zillow senior economist | |
Nicole Bachaud told CNN. “Some owners who locked in low rates during | |
the pandemic have been reluctant to sell and give up that low monthly | |
payment, especially in the most expensive markets where mortgage costs | |
are more sensitive to changing rates.” | |
But it’s a bit of a chicken or egg situation, she said. “Buyers | |
faced with a sharp increase in mortgage rates at the start of the year | |
have been slower to return to the housing market this spring. However, | |
it’s unclear if they’re waiting for lower interest rates or if | |
they’re looking at the overall affordability picture.” | |
Housing affordability, by and large, is a product of the number of | |
homes on the market. And homeowners who secured low-rate mortgages when | |
the Fed kept rates at ultra-low levels during the pandemic have little | |
incentive to move and risk paying much higher rates. | |
At the same time, if home prices came down but mortgage rates remained | |
high, Bachaud said she suspects more people would purchase homes. Right | |
now, however, the is at the highest level so far this year and home | |
prices are | |
Higher rates aren’t deterring all homebuyers | |
The homebuyers who are more likely to sit this spring on the sidelines | |
already own a home, said Sam Khater, chief economist at Freddie Mac. | |
But first-time homebuyers who are “tired of elevated rents or have | |
growing families have continued to purchase in a rising rate | |
environment,” he added. | |
Also, in certain parts of the country like Texas and Florida, new home | |
construction is providing sizeable price relief, Bachaud said. That’s | |
attracting more homebuyers to those markets. In some cases, | |
homebuilders have even offered buyers perks like mortgage buy-downs to | |
incentivize people to move into neighborhoods that may be in less | |
developed areas compared to where existing homes are located. | |
What the rest of the year could look like | |
The spring homebuying season “largely determines how the year will | |
turn out for the housing market,” Khater and his team of economists | |
at Freddie Mac said in a recent . Since 1999, more than a third of home | |
sales for the entire year occur between March and June on average, | |
according to Freddie Mac data. | |
Given the Fed is in , Khater expects mortgage rates to remain elevated | |
for longer. That’s likely going to constrain housing inventory | |
because homeowners don’t want to give up the lower rates they have. | |
Still, demand this spring has been even stronger than last year in | |
terms of how many people are applying for mortgages from Freddie Mac. | |
Taken together, all these factors will likely put upward pressure on | |
home prices, Khater and his team said in the report. | |
Zillow’s Bachaud is also predicting home prices to grow higher this | |
year, but not by more than 2%. | |
“Our outlook does depend on mortgage rates, which are creating their | |
own seasonality,” she added. “If rates fall later in the year, we | |
might see a secondary boost to home sales late this summer or even this | |
fall.” | |
That’s unlikely to happen though. As of Tuesday, investors think the | |
first rate cut of the year will come in November, according to fed | |
funds futures. | |
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