For the seventh consecutive week, mortgage rates rose. According to data from Freddie Mac, in the week ending April 21, 2022, the average rate for a 30-year fixed mortgage climbed to 5.11% from 5% last week. The average 15-year fixed rate rose to 4.38% from 4.17%. Just one year ago, the average rate for a 30-year fixed mortgage was 2.97%.
Rising Interest Rates Effect on First Quarter
The housing market is feeling the effect of rising mortgage rates. Earlier this week, the National Association of Realtors (NAR) reported that existing-home sales declined for the second straight month in March. March sales fell 2.7% from February and 4.5% year-over-year. According to the NAR, the median sales price of existing homes is up 15% from last year to $375,300.
How Will Rising Mortage Rates Effect the Spring Market?
The consensus among real estate experts is buyers with compelling motivation such as job relocation or change in family size will purchase now regardless of interest rates. Other buyers are quickly hitting the market before interest rates rise even further. And some consumers are pausing their home search to either figure out what they can afford or see how the market plays out. Expect to see a busy spring market.
The Market: Recent Data
Increase in Foreclosures
Data released by ATTOM Data Solutions reported the first quarter of 2022 saw foreclosure activity increase nationwide. The report showed that 78,721 U.S. properties had entered foreclosure in the first quarter of 2022, a 39% increase from the fourth quarter of 2021 and a 132% rise from one year ago.
Rick Sharga, ATTOM Executive Vice President of Market Intelligence, said, "Foreclosure activity has continued to gradually return to normal levels since the expiration of the government's moratorium, and the CFPB's enhanced mortgage servicing guideline," Sharga stated, "But even with the large year-over-year increase in foreclosure starts and bank repossessions, foreclosure activity is still only running at about 57% of where it was in Q1 2020, the last quarter before the government enacted consumer protection programs due to the pandemic."
Approved New Construction Faces Backlog
The shortage of housing inventory should mean a prime time for new builds. Unfortunately, with a labor shortage and the high cost of materials, we are not seeing the volume of new construction needed. Nevertheless, multi-family new housing starts increased by 0.3% in March to a seasonally adjusted rate of 1.793 million units, the Commerce Department reported earlier this week. However, single-family new construction permits fell by 4.8%. The report also included a record number of backlogged homes that, although approved for construction, are facing delays.
The Bottom Line
Even though we face rising interest rates, increased home sale prices, and a shortage of supply in existing homes and new construction, the housing market is inching towards normalcy.
Sellers, 2022 is still your market, although not as hot as last year, meaning you may not experience bidding wars driving up your price. Keep in mind that home repairs and renovations will take longer because of the shortage of supplies and labor. If you are considering selling, it is wise to schedule those appointments now.
Buyers, home prices will likely continue rising, but at a more moderate pace than 2021. You will face competition, but not to the degree of last year. Create a realistic budget and get preapproved so you know what you can afford. Interest rates have been on a seven-week ascend, so assume they may continue to rise.
