Mortgage rates dipped this week, according to Freddie Mac, with the average rate on a 30-year fixed home loan landing at 6.76%, down from 6.81% the previous week. This may seem like a hopeful move in the right direction, but homebuyers and sellers are not taking the bait. Instead, they’re sitting tight, fearful of the economic instability they’re seeing, as well as rates that continually hover close to the 7% mark.
“America is in a state of gridlock in terms of housing transactions where we’re really, for the last two years, we’ve been hitting 30-year lows. That’s largely because of high interest rates. Most American mortgages – in fact, 70% of American mortgages – are below 5%, so prevailing rates are closer to 6.8%, perhaps even going up shortly. Sellers are very reluctant to sell because they’re going to have to refinance at a much higher cost,” says Realtor.com CEO Damian Eales.
Related article: Pending Home Sales See Record Cancellation Rates as More People Turn to Rentals
The 30-year loan average rate hit 7.22% last year, and there hasn’t been much change since then, which has contributed to sluggish housing market conditions. This, coupled with the fact that many are fearful of making a move in such a volatile economy, has created a housing market that seems to be stuck in standstill mode.
Housing Market Stalled Even as Mortgage Rates Trend Downward
Despite typically being the highlight of the housing market, the spring season has brought less than desirable results this year. This is due to economic instability fears, home affordability issues, and mortgage rates that are still too high for the average home buyer.
What signs are pointing toward a slow housing season? Redfin reported that home tours, as well as other home buying services offered by them is down by 2% compared to last year, even with lower mortgage rates. Additionally, homes are sitting on the market longer than usual, home purchase cancelation rates are up, and applications for a mortgage have dropped. As reported by the National Association of Realtors, home sales dropped by 5.9% from last February, reaching a seasonally adjusted annual rate of 4.02 million.
Joel Kan, vice president and deputy chief economist at the MBA, comments on this, stating, “Mortgage application activity, particularly for home purchases, continues to be subdued by broader economic uncertainty and signs of labor market weakness, dropping to the slowest pace since February.”
Related Article: March Home Sales Fell 5.9% – Largest Decline in Over Two Years
Economic Factors and Affordability Issues Causing Housing Purchase Roadblocks
In a statement made by Redfin, economic factors were among the top reasons for buyers not moving forward with home purchases: “Widespread economic and political uncertainty. Tariffs, layoffs and federal policy changes are among the factors contributing to an air of instability. Some people are choosing to stay put.” These economic elements, coupled with high inflation and a national debt that’s pushing 37 trillion, are legitimate reasons for being financially concerned and cautious.
When it comes to the current state of the economy and the housing sector, experts are still not able to see the light at the end of the tunnel, especially with the unpredictability of the current trade war. Chip Lupo, analyst at WalletHub, touches on this, “The Federal Reserve is hinting at possible rate cuts later this year, but nothing is expected in the immediate future. With inflation still above the Fed’s target rate and global economic uncertainty in play, any major shifts in interest rates are unlikely.”
Affordable Housing Crisis Still in Play
Home prices are a major concern as well. In a recent report by Redfin, it was stated that U.S. monthly mortgage payments reached $2,870, which is a record high. Additionally, new data shows homeowners need to make just over $50,000 more than the average renter, and this boils down to needing to earn 81.1% more to own vs renting.
Related Article: Renting More Affordable Than Buying Indicating Financial Security for Investors
Making matters worse, home prices are expected to continue rising, and tariff possibilities that would result in higher construction costs will push housing prices through the roof. According to CoreLogic, it’s possible that tariffs could raise construction costs up by 4-6%, which is estimated to add about $17,000 to $22,000 to the cost of a new home over the course of the year.
This past March, even with tariffs not in play at that point, prices were rising, as noted by Ken Simonson, AGC chief economist: “Lumber and metals prices shot up in March, while contractors’ inboxes are bulging with ‘Dear valued customer’ letters announcing further increases for many products. Rapid-fire changes in tariffs threaten to drive prices higher for many essential construction goods.”
Current Market Conditions Provide Financial Advantage for Real Estate Investors
With no economic relief in sight, the odds are against homebuyers and sellers, making the current drop in mortgage rates insignificant. This is effectively pushing families into the rental arena, which can certainly benefit those who own rental real estate.
If you’d like to place your funds in a secure asset that increases in value while the dollar decreases and the economy spins out of control, then feel free to schedule a complimentary call with Morris Invest. We’re a full-service investment company that provides new construction rental properties. Our team not only spends years researching lucrative housing markets and offers lower-than-average mortgage rates, but we also place a tenant and property manager for you so you’ll be cash flowing from the start.
Don’t let funding issues stop you from pressing forward; we can work with you to get the money needed to place a rental in your portfolio. Start by simply heading over to our Funding page for some ideas.
Before you go, dive into the following video that touches on just how concerning the affordable housing crisis really is:
