Prices Hit the Sky
Alongside the larger-than-expected rise in June’s private payrolls, mortgage rates surged to reach nearly 20-year highs as investors expected increases in the federal funds rate. Last Thursday, the average 30-year fixed rate mortgage climbed to 7.7%, slowing subsiding this week to over 7.6%. Since similar levels in 2002, mortgage rates have had a steady decline, reaching as low as 2.6% in 2021. Now, economic and credit pressures have lifted rates, and in the process, home prices as well. At a record high, home prices rose by 0.7% from April, equating to an annualized growth rate of 8.9% for May. The data revealed something interesting, as normally home prices and mortgage rates have an inverse relationship. Last summer, mortgage rates had doubled in six months, and home prices deescalated as a result.
A reason for the record-high home prices could be attributed to a variety of factors, such as a supply and demand imbalance or inflation. If demand remains high without sufficient supply, home prices may climb despite the rise of interest rates. Compared to a year ago, new listings are down over 25%, majorly attributed to the abundance of homeowners reluctant to sell their homes under lower mortgage prices. However, there are several regions of the U.S. that haven’t reached their ultimate highs, with the West holding greater levels of supply to match the demand. Now, it is clear both home sellers and home buyers are having a difficult time enduring the economic conditions affecting their decisions. Higher interest rates, inflated costs, weaker consumer confidence, and fears of a recession continue to impede any progress toward cooling the housing market. With the Fed committed to bringing inflation down at any cost, it will be interesting to see how both mortgage rates and home prices change in the coming few months.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.