As mortgage rates drop to sub-4% levels, it looks like a buyer’s market – and just in time for the spring home buying season.
But Jonathan Miller, CEO of Miller Samuel, says that may only be true for homes at “the high end of the market.”
“When you look at the price spectrum from the top of the market to the entry level, the start-up market is still very tight, and largely because new supply coming in has been targeted at the high end of the market,” Miller said on Yahoo Finance’s The First Trade. “So the lower end of the starter market is static. And yet, population is growing.”
Interest rates on U.S. 30-year fixed-rate mortgages fell below 4% for the first time since January 2018, Freddie Mac said on Thursday, averaging 3.99% for the week ending May 30, down from 4.06% a week earlier and 4.56% a year ago.
The average price of homes listed for sale in March hit a record $300,000, according to Realtor.com. In addition, homes listed for sale at more than $750,000 increased by 11% year over year in March, while the number of entry-level homes below $200,000 decreased by 9% – all of which makes it harder for first-time buyers or those without much cash on hand to buy.
In April, overall sales of existing homes slipped and are 4.4% lower than they were a year earlier.
The increase in home prices has outpaced the growth in wages, leading to homes being too pricey for the average American.
In popular housing markets like New York and California, Miller says housing prices run parallel to federal and state tax laws.
“California has some of the highest taxes — the highest [priced] housing in the country,” he said. “So what you're seeing first is... a slowdown in sales activity. Markets like the Hamptons, Manhattan, and most of the metro area have seen sales decline on a year-over-year basis for anywhere between four and six consecutive quarters. Pricing, you know, comes after that.”
In comparison to March, home shoppers in April signed 1.5% fewer contracts for existing homes, according to the National Association of Realtors’ Pending Home Sales Index.
Marina is a producer for Yahoo Finance. Follow her on Twitter @marina9527.