Surging borrowing costs are threatening a potential rebound for homebuyers.
The housing market seemed poised to improve after mortgage rates fell to a two-year low in September, but measures like mortgage rates rising back toward 7 percent, could cut market momentum short, Bloomberg reported.
The volatility of the market and a high-stakes election is leading some potential sellers to hold off on putting properties on the market until conditions improve and buyers return.
Weekly mortgage applications fell throughout much of October as borrowing costs rose, but rebounded last week, according to the Mortgage Bankers Association.
The Federal Reserve, which lowered interest rates in September for the first time in four years, is scheduled to meet after next week’s presidential election. Yields on 10-year Treasuries have risen since the Fed’s last meeting, as stable economic conditions have made deep cuts in the future unlikely.
The rise in borrowing costs presents potential homebuyers with challenges on multiple fronts, limiting affordability and discouraging would-be sellers from putting properties on the market. The housing supply has also been tightened by homeowners locked into low mortgage rates who are reluctant to sell.
“We think we’ll need a sub-5.5 percent mortgage rate to unthaw the housing market, which probably doesn’t happen any time soon unless we go into a recession,” Scott Buchta, head of fixed income strategy for Brean Capital, told the outlet.
Even slight drops in borrowing costs could help stimulate the housing market. When rates fell to 6 percent in September, buyers eventually closed homes this month. Pending sales in October were up nearly 10 percent from a year prior, according to Realtor.com data.
If rates stay high, it is likely that increase in demand will fall back.
The bright spot is for buyers not yet priced out of the market. The housing supply in October, filled partially with homes that didn’t attract buyers in the summer, soared to the highest level seen since December 2019, according to Realtor.com data.
That inflated inventory is giving buyers an advantage over sellers. However, buyers have to contend with high borrowing costs taking bites out of their budget, leading some house hunters to consider closing on smaller properties or homes in need of repairs.
— Caroline Handel
Read more
