Although the Federal Reserve’s 15-month-long interest-rate hike campaign sent mortgage rates soaring above 7% for the first time in nearly two decades, home prices have hardly budged. That is at least in part due to a lack of available homes for sale.
Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.
A recent report from Realtor.com showed that the number of available homes on the market in June was down more than 47% from the typical amount before the COVID-19 pandemic began in early 2020.
“Housing prices continue to show stronger growth than what was previously expected given the suddenness and significant magnitude of mortgage rate increases,” said Fannie Mae chief economist Doug Duncan. “Housing’s performance is a testimony to the strength of demographic-related demand in the face of Baby Boomers aging in place and Gen-Xers locking in historically low rates, both of which have helped keep housing supply at historically low levels.”
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With limited availability, more buyers are turning to new houses instead of existing ones.
“Homebuilders continue to add to that supply, but years of meager homebuilding over the past business cycle means the imbalance will likely continue for some time,” Duncan said.
The interest-rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve’s aggressive interest-rate hike campaign. Policymakers already lifted the benchmark federal funds rate 10 consecutive times as they try to crush stubborn inflation and cool the economy.
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However, the return to lower mortgage rates has not been smooth. Rates on the popular 30-year fixed mortgage are currently hovering around 6.71%, well above the 5.7% rate recorded one year ago and the pre-pandemic average of 3.9%.
