Could this year’s spring home-buying season fall dramatically short of expectations? Ian Shepherdson, chief economist and founder of research consulting firm Pantheon Macroeconomics, thinks it might.
Shepherdson projected that existing-home sales will drop roughly 25% from the annual pace of 6.02 million set in February to a rate of 4.5 million by the end of summer.
“The housing market is in the early stages of a substantial downshift in activity, which will trigger a steep decline in the rate of increase of home prices, starting perhaps as soon as the spring,” Shepherdson wrote in a report last week.
Shepherdson especially noted the recent drop in mortgage demands in the US.
According to tradingeconomics.com, mortgage applications in the US sank 8.1% in the week ended March 18th, following a 1.2% drop in the previous week, as mortgage rates surged to the highest in three years.
Home loan refinancing applications also declined 14.4%, while new mortgage applications went down 1.5%, said the Trading Economics report.
In the midst of it all, the average fixed 30-year mortgage rate increased by 23 bps, the most since March 2020, bringing the rate to 4.50%, the highest since early 2019.
The combination of slightly higher mortgage rates coupled with a lessening demand for new and refinanced loans has created a see-saw effect, according to the National Association of Realtors, who reported that total existing-home sales dropped 7.2% from January to an annualized rate of 6.02 million in February.
Overall sales activity also fell 2.4% year over year to 6.17 million last month.
Illustrating the roller coaster effect, the 30-year mortgage rate jumped to its highest level in three years, averaging 4.16% last week, for the first time since 2019, according to Freddie Mac’s latest survey. Along with the rise in mortgage rates, the median US existing-home price has leaped 15% annually to $357,300 in February, marking 120 months of year-over-year gains.
Mike Fratantoni, MBA’s senior vice president and chief economist also pointed out in a recent report that “Rates on 30-year conforming mortgages jumped by 23 basis points last week, the largest weekly increase since March 2020. The jump in rates comes as markets moved to price at a much faster pace of rate hikes, as well as expectations of fewer MBS purchases from the Federal Reserve.
“With mortgage rates now at 4.5 percent,” he continued, “compared to rates at or below 3 percent not that long ago, it is no surprise that refinance volume has dropped by more than 50 percent compared to this time last year. MBA’s new March forecast expects mortgage rates to continue to trend higher through the course of 2022.”
Few local realtors are ready to predict any dramatic cooling in Pasadena’s overheated market, however, even with a rise in mortgage rates. Many have consistently pointed out that a 4% rate is a favorable one, compared to the 15-17 percent rates seen in the ‘80s and ‘90s.
