Americans might not get much of a
break this year
Fed officials have already signalled
they expect fewer rate cuts this year than they previously thought, based on
recent economic data showing that progress on inflation has stalled. Some
economists have floated the possibility that the Fed might not cut rates this
year at all — and a couple of central bank officials have even mentioned the
possibility of another rate hike. That has sent bond yields soaring. Mortgage rates track
the benchmark 10-year US Treasury yield, which has risen to its highest level
since November at 4.637%.
The Consumer Price Index for March came in hotter than expected, weighing on
the stock market and also prompting forecasters to push back their estimates
for the first rate cut.
If inflation stalls further, or even
worsens, mortgage rates could climb higher. “Homebuying is such a major
decision that people have the calculator in front of them. So if it’s 7.01%
then it’ll be an emotional shock, but nonetheless I think they’re going to
plant a number into the calculator and see whether their monthly payment is
manageable or not,” NAR chief economist Lawrence Yun said on a call with
reporters Thursday. Home buyers are being stymied not just by high mortgage
rates, but also by elevated home prices nationwide. The median price of an
existing home was $393,500 last month, NAR reported Thursday, an increase of
4.8% from a year earlier. That was the highest March price on record. February
prices also reached a record high. Today’s housing market is tough by many
measures, but Americans are also enjoying one of the strongest job markets in
history.
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A persistent undersupply of housing
A lack of inventory has been a
longstanding issue for America’s housing market. That has slowly improved in
recent months, rising 4.7% in March from the prior month and up 14.4% last
month year-over-year, according to NAR data. But housing supply overall still
isn’t keeping up with demand, which is weighing on affordability.
“We need more inventory, definitely,
for the health of the market,” Yun said. Homeowners who locked in a low
mortgage rate before the Fed began to hike rates in 2022 have largely preferred
to not sell their homes. Yun has said previously that life changes such as
marriage, divorce and new children could eventually force those homeowners to
just give up on waiting for mortgage rates to fall and sell their homes. At the
current pace of sales, it would take 3.2 months to exhaust the current level of
homes on the market, up from 2.9 months in February and 2.7 months in March
2023.
