With mortgage rates stuck at 6.5%, the spring selling season has come to naught

But unlike homeowners, home builders know how to sell in a down-market: by cutting prices. So the change in new home sales.

By wolf richter For wolf street,

The housing market is now in peak spring selling season. This is when sales volume is up and when house prices are up and when everything is going well no matter what else is happening. But not this year, and we’ve already seen it Pending home sales fell 23% year-on-year in Apriland we’ve seen it Closed sales declined 22% in MarchAnd now we are seeing that the situation worsened in late April and early May.

Applications for mortgages to buy a home, a key indicator of home sales, fell again in the latest week, according to data from the Mortgage Bankers Association, and remained below the low in April 2020 post-lockdown. Compared to the same week in previous years, purchase mortgage applications were down:

  • Up to 32% from this week in 2022
  • Up to 40% from this week in 2021
  • Up 36% from the same week in 2019

MBA’s Purchase Mortgage Index is now hovering at lows last seen during the bottom of the housing bust1. During the last week of February, it hit a 28-year low.

Mortgage rates haven’t really fallen below the 6.5% threshold According to the Mortgage Bankers Association, with the corresponding average contract interest rate for a 30-year fixed-rate mortgage at 6.50% at the latest week, after falling below the 7% threshold in November last year:

So the housing market is not melting at 6.5% mortgage rates. A healthy housing market requires sellers and brokers who are in touch with reality, and reality is determined by potential buyers waiting for prices to drop further.

Which has led to an interesting shift: From buying older homes to buying new homes, because there’s a larger supply of new homes, and homebuilders — unlike homeowners — are data-driven professionals, they know the down- How to sell in the market: By cutting prices. And they’re doing it, and buyers are flocking to it.

They’re offering lower price points, and they’re lowering mortgage rates for a set term, such as the first two years of the mortgage, which translates into lower mortgage payments for buyers, which effectively lowers the price. Seems like a cut. Homebuilders can afford it as their cost has come down.

But homeowners are still stuck with pricing considerations through March 2022. They prices are now historyBut potential sellers are having trouble adjusting, and so they aren’t keeping homes that they’ve already taken off the market, bubbling over, hoping for better times, hoping for lower mortgage rates. , “And this too shall pass.”

For homebuyers, newer homes may offer a better deal, and so there has been some shift in that direction.

But accepting a mortgage-rate purchase is risky if the purchase is only for a limited amount of time, such as a year or two, and then the mortgage goes back to a higher rate, and therefore a higher monthly payment, that the buyer has to pay. There could be trouble. Buyers are betting that by then mortgage rates are 4% or 3% or whatever, and they can refinance at the same rate as buydown rates. It’s a risky bet. If inflation stays high, rates won’t go back down, and then mortgage payments will skyrocket, but so be it. This will be a problem for another day.

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