High Mortgages Frustrate Buyers

HOUSTON – (By Dale King, Realty News Report) — Mortgage rates — both their high levels and their wild gyrations — are complicating the lives of both home buyers and sellers, according to Zillow’s latest market report.

Any dips in mortgage rates are stimulating demand and stiffening competition, say Zillow analysts, but these declines have been small and short-lived.

“We know there are a lot of motivated buyers looking for homes,” said Skylar Olsen, Zillow chief economist. “When we see mortgage rates fall, sales pick up.”

“But buyers are disappointed in their options. Homeowners aren’t giving up their current houses and low monthly mortgage payments to join a tight, expensive market. Meanwhile, volatility in the economy makes planning extremely difficult.”

“This market is not as frenzied as it was during the last two years, but home buyers might start to feel some déjà vu at the dearth of options,” said Jeff Tucker, another Zillow senior economist. “Home sellers seem to be sitting out the early spring selling season in surprising numbers.”

Higher mortgage rates are partly responsible for keeping inventory growth muted. Buyers who bought or refinanced in 2020 or 2021, when rates were well below 3.5 percent, want to hang on to their low mortgage rate.

Selling a home and relocating means a home owner has to abandon a low mortgage rate and pay higher interest in today’s market.

Last week, the average 30-year mortgage rate was 6.42 percent, up from 4.42 percent a year ago, according to a Freddie Mac survey.

Mortgage rates have been incredibly volatile over the past six months, the Zillow report notes, and buyers are responding to the chance to lock in a cheaper monthly payment on the few occasions when the opportunity arises.

Sales activity is picking up, Zillow says, but it is not accelerating like it usually does at this time of year. After being reinvigorated by lower rates in late January, sales slowed over the course of February as rates hiked back up. Overall, February saw 19 percent fewer newly pending sales than last year and 5 percent fewer sales than the most recent pre-pandemic reading in 2020. Houston home sales were down 30 percent from a year ago, according to a January report from the Houston Association of Realtors.

Home values flatlined from January to February, leaving the typical home value at $328,604, or 4 percent below the peak value set in July 2022, according to the Zillow Home Value Index. Home values are 4.4 percent higher than one year earlier — a rapidly decelerating pace of annual growth, down from the nearly record-high 18.8 percent year-over-year growth measured last April.

The overall lack of inventory should prevent significant price declines.

The Zillow report says rates are likely to remain volatile through the spring selling season. Researchers at the real estate organization suggest that working with a mortgage professional early in the process can help buyers demystify what’s affordable, prepare their credit and get pre-approved as a means of strengthening their offer.