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Mortgage rates slide, but other challenges remain for homebuyers

Mortgage rates slid this week, but the modest decline wasn’t enough to offset other challenges homebuyers face.

The rate on the 30-year fixed rate mortgage fell to 6.39% from 6.43% the week prior, according to Freddie Mac. Rates have held above 6% since the start of the year, constricting housing affordability and giving way for a slower-than-usual spring market.

With higher rates, homebuyers are contending with a trifecta of obstacles as a shortage of for-sale homes boosts prices, fueling concerns of whether now is a good time to buy. Meanwhile, homeowners remain hesitant to sell, worsening inventory woes.

“This week, mortgage rates inched down slightly amid recent volatility in the banking sector and commentary from the Federal Reserve on its policy outlook,” said Sam Khater, Freddie Mac’s chief economist, said in a statement. “Spring is typically the busiest season for the residential housing market and, despite rates hovering in the mid-6% range, this year is no different. Interested homebuyers are acclimating to the current rate environment, but the lack of inventory remains a primary obstacle to affordability.”

Demand falters as affordability tightens

Although rates eased, homebuyers are still pulling back from their purchase plans.

The volume of mortgage purchase applications fell 2% last week, the Mortgage Bankers Association (MBA) found, the first decline in three weeks. Overall, demand was 32% lower than the same week one year ago.

What’s to blame for the recent drop in demand? For one, the revived tumult among regional banks, the MBA noted, particularly its impact on the jumbo loans as some lenders tighten standards.

“The jumbo-conforming spread continues to narrow, an indication that there is reduced lender appetite for jumbo loans following the recent turmoil in the banking sector and heightened concerns about liquidity,” Joel Kan, MBA vice president and deputy chief economist said in a statement.

Home prices, too, are causing strain for homebuyers.

For instance, home prices increased more than previously estimated in the first three months of the year, a separate study from Black Knight found. As of March, home prices had risen 0.45% from February. Prices are now just 1.7% off their June 2022 peak.

Inventory concerns persist

A customer looks at listings on display outside a Brown Harris Stevens offices in New York. (Credit: Brendan McDermid, REUTERS)
A customer looks at listings on display outside a Brown Harris Stevens offices in New York. (Credit: Brendan McDermid, REUTERS) (Brendan McDermid / reuters)

Much of the reason prices are increasing now is the dearth of supply on the market relative to the modest increase in buyers coming into the market. Many potential move-up sellers are deciding to stay put this spring, causing a growing problem in the housing market.

New listings of homes for sale slid 22.4% in the U.S. from the previous year during the four weeks ending April 23, Redfin found. That’s one of the largest declines reported since the start of the pandemic.

A separate study from Realtor.com, revealed that the number of newly listed homes for sale had fallen 21.3% nationwide in April and in 49 of the 50 largest markets compared with a year ago. At the same time, pending listings — or homes under contract — also fell 22.5% year over year in April.

“In a typical year, we would expect to see the number of homes for sale begin to increase more significantly from this point forward,” Realtor.com economist, Jiayi Xu said in a statement. “However, mortgage rates remain elevated, leading many sellers to report feeling ‘locked in' by their current low mortgage rate and planning to wait until rates come down before selling, leading to fewer newly listed homes than a year ago.”

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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