Thirty-year mortgage rates rose to 6.603% this week, an increase from 6.449% the previous week, according to U.S. News data. Mortgage rates dropped steadily during the first two months of the year but reversed course in the wake of the war in Iran. Rising oil prices have been pushing rates upward, giving buyers even less of an entry point into the housing market.
For the week ending March 20, mortgage applications decreased 10.5% from the week prior, according to the Mortgage Bankers Association. Refinance activity dropped 15% from the previous week.
“The threat of higher-for-longer oil prices continued to keep Treasury yields elevated, and mortgage rates finished last week higher,” said Joel Kan, MBA’s vice president and deputy chief economist, in a report. “Given this period of increasing mortgage rates and diminishing refinance incentives, refinance applications decreased 15% as applications across all loan types declined. Purchase applications were also down last week, as higher mortgage rates, coupled with affordability constraints and economic uncertainty, pushed some potential homebuyers to the sidelines.”
Spring Home Buyers Can Take Their Time
In February, there was only a 3.8-month supply of unsold real estate inventory on the market, according to the National Association of Realtors. It typically takes a five- to six-month supply of available homes to create a balanced market where neither buyers or sellers have an advantage.
Given such limited inventory, it’s natural to assume that sellers might have the upper hand. But actually, that’s not the case.
Despite a limited supply of homes for sale, there are still more sellers than buyers. That’s allowing buyers to approach the process more cautiously.
In February, the typical home that went under contract spent 66 days on the market, according to Redfin. That’s the slowest February pace since 2016. It’s also a notable jump from a year earlier, when the typical home under contract sat on the market for 58 days.
“House hunters have been waiting for mortgage rates to drop, and they finally fell below 6%,” said Redfin senior economist Asad Khan in a report. “But then rates bounced back. The war in Iran, skyrocketing gas prices and other economic jitters are making homebuyers nervous.”
Economic uncertainty isn’t the only factor prompting prospective buyers to take their time. Since, as Redfin points out, sellers currently outnumber buyers by more than 40%, buyers can use the fact that sellers may be getting desperate to their advantage.
And some buyers are doing just that. The typical homebuyer in February paid 1.8% less than the home’s final list price. That’s the steepest discount for this time of year since 2023.
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Home-Sale Agreements Keep Falling Through
Not only are homes sitting on the market longer, but more home-sale contracts are falling through after being signed. Redfin reports that in February, more than 42,000 home-sale agreements were abandoned. That represents 13.7% of homes that went under contract last month.
It also underscores just how much negotiating power buyers have in today’s market due to being extremely outnumbered by sellers.
Redfin also says there’s typically a higher level of canceled home-sale contracts at the end of the year and a lower share in the spring. But given current housing market conditions, this year’s spring season may be an outlier.
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Mortgage Rates Continue to Climb as Oil Prices Remain High originally appeared on usnews.com