June 20th, 2019 9:11 AM by Jackie A. Graves, President
Mortgage rates have been
falling steadily since the last week of April, and that may be reigniting home
The median price of a home sold
in May rose 3.6% compared with a year ago, according to Redfin. That is the
largest gain in 7 months.
Mortgage rates have been falling steadily since the last week of
April, and that may be reigniting home price appreciation. The lower the rate,
the more purchasing power buyers have.
Home price gains had been shrinking since last summer, when rates
rose sharply, but now they are making a U-turn as rates have been falling
pretty steadily since April.
The median price of a home sold in May rose 3.6% compared with a
year ago, according to Redfin. That is the largest gain in 7 months.
“As mortgage rates have fallen this month, Redfin has seen upticks
in the number of people wanting to talk with our agents about buying homes and
the number going on home tours,” said Redfin chief economist Daryl Fairweather.
“Recent surges in mortgage applications also reflect the impact low rates are
having on homebuyer demand nationwide.”
A report from CoreLogic showed prices up 3.6% in April annually,
the first annual increase since March of last year.
“The pickup in sales between March and April, has helped to
counter the recent slowing in annual home-price growth,” said Dr. Frank
Nothaft, chief economist at CoreLogic. “Mortgage rates are 0.6 percentage
points below what they were one year ago and incomes are up, which has improved
affordability for buyers. However, price growth has remained the highest for
lower-priced homes, constraining housing choices for first-time buyers.”
Rate drop on 30-year fixed
And that is the double-edged sword for most home buyers today. The
average rate on the 30-year fixed has fallen from just over 5% last November to
about 3.86% today, according to Mortgage News Daily, providing a sizable
savings on a monthly payment. But while buyers may get a break there, the supply
of lower-priced homes for sale is still incredibly low.
The reasons for the supply constraint are manifold. Home builders
are still not putting up as many entry-level homes as are needed because the
costs of land, labor and materials are just too high. There were 404,000 job
openings in the construction sector in April, the highest since the Great
recession, according to the National Association of Home Builders.
In addition, the existing supply of entry-level homes was eaten
into significantly by investors during the housing crisis. Millions of homes
that went to foreclosure are now part of a new asset class of institutional
investor-owned rental portfolios.
Some analysts expected investors to sell off all these homes when
the market recovered, but most did not, or if they did, they sold to other
investors. Single-family rental demand is very high, and the properties
continue to be lucrative, especially with management structures now built in.
Lower interest rates therefore mean even more competition for
entry-level buyers. On the higher end, homes are more plentiful, but demand is
“In May, inventory posted its smallest increase in eight months,
and fewer new listings came on the market than last year,” said Fairweather.
“Low rates and rising prices will likely lure sellers onto the market this
summer, but the lack of new construction will continue to hold back sales
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