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    Mortgage Rates Tick Up Over 3 Percent, Dealing Battered Home Buyers Another Blow

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    For the better part of a year, one bright spot for home buyers in this hypercompetitive market of record-high prices and a record-low number of homes for sale has been mortgage interest rates, which dropped to unheard-of lows. Now it looks like the era of cheap loans may be coming to an end.

    Mortgages rates crossed the 3% threshold for the first time since July 2020, according to Freddie Mac. They rose to an average 3.02% on 30-year fixed-rate loans in the week ending March 4.

    “The era of mortgage rates under 3% is likely behind us,” says realtor.com® Senior Economist George Ratiu. “For first-time buyers, the market is looking a lot more challenging. The current trajectory of interest rates is putting a damper on their budgets and making it more expensive to afford a home.”

    Almost 20% of first-time buyers spent more than a year shopping for a home due to the high prices and lack of inventory as the coronavirus pandemic and low mortgage rates pushed more would-be buyers into the market, according to a recent realtor.com survey.

    As a result of the low rates and the pandemic, the number of homes for sale plummeted 49% compared with February of last year. That’s particularly bad as the nation was already in the throes of a severe housing shortage a year ago. The coronavirus pushed more buyers into the market as folks fled the cities for the suburbs and cooped-up families sought larger, more spacious homes. Record-low mortgage rates also served as a powerful incentive.

    But many sellers held off on listing their abodes due to concerns about contracting COVID-19 through an open house or having strangers walk through their properties. And builders haven’t sufficiently been able to ramp up the new construction needed to ease the shortage, although they’ve made strides in recent months.

    The low supply of homes for sale, coupled with high demand, has resulted in median home list prices rising 14% in February compared with the previous year, according to realtor.com. Nationally, prices were $353,000 in February, according to realtor.com data.

    Rising rates could prevent home prices from rising much further, as the rate increases make monthly housing payments more expensive.

    “For sellers, the rising mortgage rates can motivate them to list their homes sooner, at the beginning of the spring season,” says Ratiu. “There are still plenty of buyers in the market, and many of these buyers are getting squeezed by rising rates.”

    But Ratiu cautions buyers to remember that even rates at just above 3% are still very low.

    “Home sellers and home buyers have gotten really used to extremely low rates,” he says. “Rates even in the 3% to 3.4% [range] remain extremely affordable by historical standards.”

    The post Mortgage Rates Tick Up Over 3 Percent, Dealing Battered Home Buyers Another Blow appeared first on Real Estate News & Insights | realtor.com®.

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