The spring home buying season has begun, and the housing market is showing signs of recovery.
Mortgage interest rates fell for the second week in a row, hitting their lowest level in more than a month. The average interest rate on the benchmark 30-year fixed mortgage fell to 6.74% from 6.88% last week, according to Freddie Mac.
And as mortgage rates fall, supply is starting to recover. According to Redfin (RDFN), the number of new listings reached a 17-month high in February, and the total number of homes sold reached a one-year high.
Although this has improved from last year's sluggish levels, supply and demand are still far from balanced. The culprit: the side effects of the Fed's aggressive rate hike campaign.
Top economist Gary Schilling told Yahoo Finance that the Fed's changes in interest rate policy have created a “perfect storm” for the industry, with many financial institutions locking in very low interest rates due to the pandemic and coronavirus outbreak. He said rising interest rates are encouraging would-be sellers to stay put. Many years ago.
The large difference between current and past mortgage interest rates is creating an “artificial tightness'' in the housing market. “It's not going to last forever, but it's certainly disruptive right now,” Schilling said.
Redfin CEO Glenn Kelman expects the Fed's recent actions to have a decades-long impact on the housing sector, saying it will take years to weather the fallout of the central bank's aggressive interest rate hike campaign. I was warned that it would cost too much.
“The supply shortage is going to continue for a long time,” Kelman told Yahoo Finance. “What the Fed has done…will be with us for 30 years.”
House prices are rising due to a lack of supply. According to the National Association of Realtors, the median price of existing homes rose 5.1% in January from a year earlier, with prices rising in all four regions of the United States.
Hopes for relief for the housing sector may be postponed. John Stoltzfus of Oppenheimer & Co. said a series of better-than-expected inflation conditions is giving policy makers more reason to hold off on cutting interest rates. He told Yahoo Finance Live that he doesn't think the Fed will cut rates until at least its June meeting.
The delay in rate cuts suggests that mortgage rates are unlikely to fall much further, at least in the short term, and a more substantial recovery in the housing market may be delayed.
“We need more supply. The real barrier to home sales is the number of homes sold,” Kellman explained. “Unless interest rates fall significantly, inventories will increase modestly, but to see a significant increase mortgage rates would need to fall substantially.”
Moody's Analytics predicts a shortfall of 1.5 million to 2 million total housing units this year, with a shortfall of up to 1.2 million single-family homes.
sheena smith Anchor of Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Have a tip about a deal, merger, activist situation, or more? Email seanasmith@yahooinc.com.
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