Home Prices And Interest Rates? It’s Anybody’s Ball Game

What goes up must come down. You’d think. Realtor’s Margaret Heidenry notes how, for the past two years, homebuyers have faced hoards of competition that drove housing prices sky-high. Today, however, as buyers hope home prices are beginning to soften, interest rates, having risen more than 77% compared to a year ago, are the new nasty.

The odds are still in favor of the Feds keeping rates high for a while, but the odds are also good that things can change again when they begin to see solid evidence of inflation abating. Let’s hope.

“Chair [Jerome] Powell made it clear that taming inflation is a top priority that will likely require a higher policy rate than was previously expected,” says Realtor’s chief economist, Danielle Hale. Mortgage rates, while not directly tied to the Fed’s actions, do tend to react in tandem. As Hale explains, “Mortgage rates are likely to follow these expectations higher.”

Home prices don’t seem to be softening at a rate that gives homebuyers reason to rejoice quite yet. For the week ending Oct. 29, they have continued to increase by 12% compared to that same week last year, hitting the 44th week of double-digit growth. Buyers, who look to the Fed’s promise of continuing to jack up interest rates—are still making offers, however, likely trying to outrun the market. “Despite affordability challenges in today’s housing market, the homeownership rate continued to climb in the third quarter as households looked to lock in monthly payments,” explains Hale.

Yet while there are home shoppers enjoying success in the market, Hale notes that when it comes to the path of homeownership “the hurdles are getting higher.” Heidenry explains that as some homebuyers pull back and shelve their plans, the backlog of homes sitting on the market is growing.

“Data for the week ending Oct. 29 shows that the number of active listings on the market is up 40% compared to that same week a year ago, surpassing heights not seen since October 2020,” she says. “Yet the number of new listings—of sellers who are just entering the market—are down by 13% compared to this same week a year earlier.

Again, she cites Hale: “New listings data suggests that homeowners remain reluctant to sell. This marks the seventeenth week of year-over-year declines in new listings coming up for sale.”

You might ask: Why aren’t sellers eager to cash in on high home prices? It’s one of those “chicken-or-the-egg-which-came-first?” scenarios. “Because many also carry mortgages with low-interest rates. And they likely don’t want to buy a new home—and apply for a new mortgage at a higher monthly rate,” says Hale.“With most homeowners locked into mortgage rates well below currently prevailing rates, the number of new listings is likely to remain low.”

The numbers for October indicate that homes spent 51 days on market before being snapped up. And for the week ending Oct. 29, homes spent six extra days on the market as this same week last year, marking the fourteenth straight week that properties spent more time on the market compared to 2021. It’s a sign.

“Buyers who haven’t called off the search as mortgage rates continue to climb will likely have more time to make decisions,” says Hale.

Realtor, TBWS