The housing market is experiencing a slowdown as rising mortgage rates deter potential buyers and sellers. According to the National Association of Realtors, existing home sales fell almost 17% in July compared to the previous year. Increasing mortgage costs, with interest rates reaching their highest level in more than two decades, have dampened buyer enthusiasm. Buyers are adopting a wait-and-see approach to assess the situation. First-time buyers, in particular, regret not entering the market earlier when mortgage rates were more favorable.
The rising rates have also discouraged homeowners from selling. Those who recently purchased or refinanced their homes still enjoy low mortgage rates, averaging around 3%. Reluctant to give up their favorable rates for higher rates, homeowners are opting to stay put. This lack of movement in the housing market is reducing the supply of homes available for sale, which is down approximately 15% from the previous year.
In this more competitive environment, buyers are finding themselves in bidding wars, even though overall sales have dropped. The average cost of a home sold last month was just under $407,000, roughly 2% higher compared to a year ago.
The combination of rising mortgage rates and limited housing supply has led to a call for more affordable housing options. Some builders are constructing smaller houses to address affordability concerns, while townhomes and condominiums have gained popularity among buyers. However, given that mortgage rates are unlikely to return to historically low levels, real estate experts believe that policy changes and community efforts are necessary to create housing that is accessible across income brackets.
Fortunately, construction is underway for more than a million apartments across the country, which may help alleviate the rental market and provide temporary relief for those unable to afford homeownership.
Source: NPR News