The spring season, known for being the busiest time of the year for home purchases, just took another hit as mortgage rates rose to a three-month high this week. According to Freddie Mac, the average rate on a 30-year fixed mortgage reached 6.86% as of May 22nd, which was up from 6.81% the previous week. As rates continue to inch closer to 7%, potential home buyers are sitting on the sidelines even with a wider selection of homes available on the market.
Lawrence Yun, chief economist at the National Association of Realtors, makes note of this, stating, “I thought that inventory was a big constraint to home sales. What we are finding is that even with increasing inventory, we are not getting a pick-up in home sales,” We’re seeing that “mortgage rates are a big driver of how people can get into the market,” Yun added.
Elevated Mortgage Rates & High Property Prices Keep Home Sales on Downward Trend
With mortgage rates hovering close to 7% and home prices still climbing, as well as economic uncertainty instilling financial fear into the market, home sales dropped 0.5% in April, declining for a second straight month, which is a level not seen since 2009. Breaking this down, there were 1.45 million unsold houses recorded at the end of April, a 9% rise from the prior month, and a 20.8% increase from April 2024. This adds up to the largest number of unsold homes on the housing market since September of 2020.
Concerning property prices, the median price of houses that were purchased in the month of April was $414,000. What this equates to is that the gap between what the average buyer can afford and what houses are selling for has grown. Expensive home prices, along with mortgage rates that cause monthly payments to skyrocket, are creating a situation where it’s impossible for the average American to move forward with a home purchase.
Related Article: March Home Sales Fell 5.9% – Largest Decline in Over Two Years
What’s Driving Home Loan Rates Up?
A variety of elements are being flagged as possibly playing a role in driving up these mortgage rates in recent months, with the bond market being one of them. Although there were some dips, treasury yields have been inching higher recently, and mortgage rates typically follow suit by rising along with them.
The bond market generally responds to the U.S. economy, which has been volatile and uncertain for some time now. David Sadkin, president at Bel Air Investment Advisors comments on this, “The bond market is basically saying inflation remains a significant risk to the economy. Whether that’s from the tariffs or the tax bill or the combination of the two. This is the highest level of uncertainty I can remember in at least the past 17 years.”
The government budget deficit, tariff policy uncertainties, and concerns regarding the proposed tax bill, along with the recent moody’s downgrade of U.S. creditworthiness, have prompted fears concerning whether U.S. Treasuries still serve as a secure option for investor dollars. This has pushed bonds up higher and mortgage rates are going along for the ride.
Related Article: Trump’s War with Corrupt Federal Reserve Places U.S. Dollar on Shaky Ground
Rising Barriers in the Housing Market Push Families into Rentals
With mortgage rates making it near impossible to afford home loan payments and property prices continuing to soar, Americans are being funneled into rental properties. On top of this, housing prices are expected to continue rising, which will keep renters in place. This situation, which has been impacting potential home buyers for the past four years or so, is creating a switch in the attitude toward achieving the American dream.
At this point, families are realizing they can live out the American dream in a house they rent. They’re finding they get the same perks and more, for less than a fraction of the cost and responsibility of buying a home. That said, the soaring demand for rentals is creating lucrative opportunities for investors.
Related Article: American Dream CRUSHED – SCE Housing Survey Reports Renters’ Hopes of Owning a Home Sinks to Historic Low
Real Estate Investors Benefit from the Current Housing Market
With so many individuals shut out of the housing market and the demand for rentals rising each year because of it, real estate investors are at an advantage. The high demand keeps rentals filled with paying tenants and it also allows for the maximum rent to be charged. Investors are also benefiting from the rising property prices as they see their equity climb. The bottom line is that owning rental real estate can enable you to generate monthly income and build wealth through a hard asset that’s not connected to the economy or the government.
If you’re interested in taking control of your wealth through real estate investments, feel free to schedule a complimentary call with our team. We specialize in building and providing new construction rentals to our clients. We also place a property manager, as well as a tenant for you so you’re cash flowing from the start.
In the meantime, head over to our free Freedom Number Cheat Sheet, where you can calculate how many properties you would need to become financially free. You can also dive into our Program Overview page to get an idea of what we can do to help you get on the path to building great wealth.
