Navigating the Spring Housing Market
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This is a special edition of Your Money Briefing for Friday, April 7th. I'm J.R. Whalen for The Wall Street Journal. Welcome to the second chapter in our Under Contract, Your Guide to Home Buying series. On our first episode, we went through the steps to get your personal finances in order to think about buying a home. But having your finances in order isn't enough to navigate one of the most complex housing markets in decades.
Get some more reaction to that weak number and what it says now about the health of the housing market. A major shift in the housing market as home sales continue to fall.
The housing market cooling, rising mortgage rates, cold water in what was a red hot market in the past few years.
During the pandemic, the pendulum swung far in the direction of sellers as millions of city-dwelling Americans were on the hunt for more space, driving up prices. Fast forward to spring 2023 and interest rates are a lot higher, though they've come down a bit in recent weeks. And inventory, available homes for sale, is stubbornly low. That's reshuffled the balance of power between buyers and sellers.
The housing market is inching toward a more balanced market. But markets are local. Every city and every neighborhood is going to be very different.
Orfeh Divungi is a senior economist at Zillow, the online real estate company. And he joins us to lay out the contours of the current housing market and what buyers should expect. Thanks so much for being with us, Orfeh.
It's a pleasure. Thanks for having me.
So Orfeh, in the current market, we're seeing falling mortgage rates coupled with falling prices. Have we been here before?
Yes, we have. Historically, mortgage rates have hovered around 7%. Rates are roughly 6.5% today. But look, housing costs have risen rapidly over the last three years.
How are rising mortgage rates and low inventory reshuffling buyer vs seller power?
but incomes just haven't kept up. And that means buyers have lost a ton of purchasing power over the last couple of years. Mortgage rates doubled over the course of 2022, bringing the typical mortgage payment on a home purchase 45% higher than it was just a year ago. And when you combine the price increases and the increases in mortgage rates, mortgage payments are now double what they were in 2020. And that means basically fewer home buyers are shopping. But the flip side of it is that for buyers who can afford it, they just won't see the lines out the doors that they saw in 2021 or the bidding wars on most listings. They'll have more time to shop when compared to a year ago. Competition for well-priced and move-in ready homes is still very rapid, very strong when compared to before the pandemic.
And that's because inventory is still very, very low, 40% lower than it was before the pandemic.
Yeah, I want to ask you about the low inventory in a couple of moments, but buyers and sellers, they keep their eyes peeled on mortgage rates, and in many cases, the 30-year fixed mortgage rates. We often see them tick up or down on a weekly basis, but just help us understand this for a bit. What causes those movements in mortgage rates?
At any time mortgage rates dip, we see an increase in mortgage applications and housing sales. But it's very hard to predict where mortgage rates will go next. However, historically, the 30-year fixed rate tends to follow the yield on the 10-year Treasury. And these longer term rates depend on current inflation, but also the expectations about the economic outlook and where inflation is going to be. And let me just give our audience a small example.
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