Mortgage rates fall again, but other obstacles remain for homebuyers

·3 min read

Mortgage rates dropped for the fourth straight week, relieving homebuyers a bit more. But bigger declines may be needed to offset other challenges buyers face this spring season.

The average rate on the 30-year fixed mortgage dipped to 6.28% from 6.32% the week before, according to Freddie Mac. Rates have slid nearly a half-point in the last month, reflecting the decline in the 10-year Treasury yield since early March — which was first kicked off by the banking crisis and then sustained by signs that inflation may be cooling.

While the drop takes some pressure off of buyers, the persistent lack of for-sale inventory hampers their ability to snag a home. Rates haven't fallen enough either to convince many owners to list their homes, maintaining a housing gridlock that keeps prices elevated.

"Affordability and availability of homes are the biggest hurdles for buyers in today's market, though both are driven by mortgage rates," Jeff Tucker, a Zillow senior economist, told Yahoo Finance. "Many homeowners just are not willing to give up their current house and low monthly payments to jump into a tight, expensive market.”

Despite the lower rates, buyers aren’t buying — or can’t buy.

The volume of mortgage applications for a home purchase decreased by 4% on a seasonally adjusted basis from one week earlier, according to data for the week ending March 31 from the Mortgage Bankers Association (MBA). Activity remains 35% lower than a year ago on an unseasonal basis.

Purchase applications for loans backed by the Federal Housing Administration and Veterans Affairs — popular among first-time buyers — also decreased last week.

"It's buyers at the fringes of affordability that are affected the most,” Keith Gumbinger, vice president of mortgage website, told Yahoo Finance. “A borrower may be able to qualify for enough mortgage to participate in her local market when rates are 4.5% or even 5%, but will likely be shut out of it at 6%.”

That’s where rates nearly sit now, even though they’re lower than a month ago. The other big obstacle for buyers is the stubbornly low number of homes for sale, which helps to bolster prices.

"Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season," Mike Fratantoni, MBA’s chief economist, said in a statement.

For instance, unsold inventory in March was at a 2.6-month supply, according to data released by the National Association of Realtors. A healthy market — where neither buyers nor sellers have the upper hand — typically has a 6-month supply.

Additionally, only 410,000 single family homes came on the market this week, down almost 1% from the prior week, according to Altos Research.

A for sale sign stands in front of a house, Tuesday, Oct. 6, 2020, in Westwood, Mass. U.S. long-term mortgage rates slipped this week as the key 30-year loan marked a new all-time low for the 11th time this year. Home loan rates have notched a year-long decline amid economic anxiety in the recession set off by the coronavirus pandemic. (AP Photo/Steven Senne)
A for sale sign stands in front of a house, Tuesday, Oct. 6, 2020, in Westwood, Mass. U.S. (AP Photo/Steven Senne)

A big part of the inventory problem is that homeowners who would normally sell are holding off because of rates. According to Redfin, 85% of homeowners had a rate below 6% as of September 2022.

"Just as buyers buy for a reason, sellers also sell for a reason,” Gumbinger said. “Certainly, a homeowner would likely be less willing to give up a record-low rate for a mortgage if they are making a lateral move or moving up, so this may give folks some pause.”

Those sellers who have kept their house on the market are getting more reluctant to offer discounts as rates fall and inventory remains scarce, another frustration for buyers. For instance, recent Redfin data shows that the median asking price has been rising steadily since January.

“We’re back to getting multiple offers, no concessions from sellers, and buyers back to bidding,” Adriana Perezchica, president of Via Real Estate Group, previously told Yahoo Finance. “When competition picks up, sellers notice and aren’t willing to negotiate.”

Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).

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