Homebuyers looking for affordability this spring won’t find any relief in rates — or home prices — anytime soon, one expert said.
"We're not really seeing a market that's going to be super, super friendly in the ways that we've maybe seen in the past — at least for the rest of this year," Zillow Senior Economist Nicole Bachaud recently told Yahoo Finance Live (video above). "We're still going to see rates being challenging. We're still going to see inventory being challenging."
Bachaud predicted that mortgage rates will likely stay within the 6.5% range for the rest of the year. That's where they've been bouncing around since the start of the year. The average rate on the 30-year fixed mortgage increased to 6.38% last week, Freddie Mac found, the highest level in a month since the unfolding banking failures that swept Silicon Valley in March.
The uptick in rates – coupled with higher home prices and an intractable inventory shortage – could prompt budget-conscious buyers to retreat to the sidelines once more as they lose the short-lived edge they had this winter.
“What we are seeing right now is inventory is super low on the market, and that's really what's causing a lot of the fluctuation as well as these rate increases,” Bachaud said. “That’s blocking both buyers and sellers from being able to interact.”
Inventory bumps up, but remains low
Inventory challenges persist for buyers as the spring buying season gets underway.
While 80,000 single family homes entered the market as of April 24, the largest share of new listings since September, according to Altos Research, 21,000 were under contract immediately, the largest amount in one week since July 2022.
Overall, there are 414,000 single family homes on the market nationwide, up 2% from a week ago. While that’s 50% more active inventory than last year at this time, it’s still 50% less than in 2019.
“Limited inventory is really holding back more sales from happening,” Mike Simonsen, CEO of Altos Research said in a blog post. “People are buying basically everything that’s available.”
As a result, the inventory crunch has boosted home prices. The median price of single-family homes increased to $444,481 this week, up 1% from a week ago, Altos Research noted. The median price for new listings and for homes in contract also increased from the previous week.
“We've seen prices starting to increase this spring, but I think a lot of that is just due to the fact that those buyers are shopping and there's not any homes for them to look at,” Bachaud said. “Our newest (listings) are way down. That's leading to overall inventory remaining tight and that's going to continue to lead to high prices and affordability challenges.”
Homeowners are reluctant to sell
While buyers are scouting affordable deals, a large share of homeowners are forgoing selling this spring.
According to Realtor.com, at least two thirds of homeowners have a current mortgage rate at or below 4%, far below today’s rate of 6.39%. Recent data also found that an estimated 82% of potential sellers who would need to purchase once they sold, feel locked-in to their low rates.
“We have these sellers who are locked into their 3% rates and are really unwilling or able to give up that home and they're sitting on that existing inventory,” Bachaud said.
The sellers who have kept their listings on their market are finding they don’t have to negotiate as much as they did in the winter.
According to Altos Research, only 29.4% of homes on the market had a price reduction as of April 24 – below 2019 levels. The lack of inventory of existing homes has also pushed the influx of buyers into considering new homes. As a result of the new demand, builders are cutting back on incentives.
For instance, 30% of builders reduced their home prices in April, down from 31% in March and February and 35% in December. The average price reduction was 6% in April, down from 8% in December.
“That shows us again both on the side of sellers not being able or willing to list their homes because of the low rates they're locked in at and also buyers facing these affordability challenges,” Bachaud said. “Both sides are leading to those lower sales numbers and affordability is really the sticking factor there. And mortgage rates have the biggest impact on mortgage affordability in this market.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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