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Home Buying Eases as Mortgage Rates Nearly Double the Pandemic Low

Pending home sales reveal impact of mortgage rate surge. Upward pressure on mortgage rates from lofty inflation and the Fed’s plan to hike interest rates multiple times this year are influencing home buying. In late April, the average rate for a 30-year mortgage climbed for the seventh consecutive week to 5.1 percent, up 200 basis points from the beginning of this year and almost twice as high as the 2020 trough. While demand for homes remains sturdy, the higher cost of borrowing is condensing buying activity. A slowdown in purchases, however, has not yet weighed on price growth. The median sale price of an existing home rose 1.3 percent month-over-month in March.

Multifamily still in a strong position if housing market cools. The recent mortgage rate swell and coinciding moderation of home purchases has the potential to temper price growth, but the affordability gap relative to apartments remains substantial. The difference between an average monthly mortgage payment and a rent obligation stood at $638 in the first quarter of 2022. By comparison, that margin was $440 during the same period in 2021. 

Developing Trends

Number of homes for sale ticks up. In March, existing home listings rose month-over-month, which had not happened since July of last year. This may indicate that some owners waiting to list amid fast appreciation were coaxed into selling as mortgage rates started to rise. The opportunity to lock in favorable financing on a home they plan on moving to before rates increased further was a motivating factor, while expectations for additional appreciation may be subsiding as purchase activity tapers. 

Costs of new homes skyrocket, despite fewer purchases. The median price of a newly built single-family house reached $443,000 in March, escalating by more than 4 percent from February. During the same month, the number of new homes for sale notched a 13-year high.

Read full report from Marcus & Millichap and Institutional Property Advisors (IPA)

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