Sharply higher mortgage rates have caused a sudden pullback in home sales, and now sellers…
With mortgage rates at near historic lows, more people are pouncing on the opportunity to buy a home and going for properties that may have been a little out of their price range before. The irresistible savings should add some much-needed heat to the traditionally slow fall housing season this year, even as builders have some catching up to do to meet rising demand.
Pending home sales, a measure of real estate contracts signed but not yet closed, rebounded in August after a disappointing July slump, according to a report from the National Association of Realtors (NAR) released Thursday morning.
Contract activity rose 1.6% month-over-month in August to 107.3 (where 100 is considered average), and showed an even more impressive 2.5% climb compared to a year ago. Meanwhile, the benchmark 30-year fixed mortgage rate hit 3.64% this week, down from 4.72% in September 2018. Pending home sales were up in all four major U.S. regions, with the greatest gain of 8.0% year-over-year coming from the West.
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“It is very encouraging that buyers are responding to exceptionally low interest rates,” said Lawrence Yun, NAR chief economist and fellow Forbes.com contributor, in the report. “The notable sales slump in the West region over recent years appears to be over. Rising demand will reaccelerate home price appreciation in the absence of more supply.”
With some minor fluctuations, mortgage rates have been steadily dropping from 4.51% in January while the Fed also approved two benchmark rate cuts this year. (Mortgage rates do not necessarily move in line with Federal Reserve policy, but short-term rate changes do put pressure on long-term rates like the 10-year Treasury note and mortgages.)
The latest data on market activity shows that buyers are finally taking advantage. The delayed reaction is normal (low mortgage rates don’t offset what’s usually the largest obstacle for buyers: the down payment). It does boost optimism though and offer significant monthly purchase savings. In the words of Zillow Economist Matthew Speakman: “This is what low mortgage rates look like in action.”
“With mortgage rates hovering over 100 basis points lower than last year, home shoppers leveraged their higher wages and signed the dotted line on purchase contracts,” echoes realtor.com senior economist George Ratiu in a press statement. “As the roughly $90 savings on a monthly payment allowed shoppers to stretch their budgets, they found more homes in the mid- to upper-price range.”
Read more at forbes.com