The housing market, which had been on fire, has been cooled by the Federal Reserve’s series of interest rate hikes this year.
In August, existing home sales dropped for the seventh consecutive month, by 0.4%, as the Federal Reserve aggressively raised interest rates to cool the economy and drive down high inflation. Because of this, mortgage rates have risen, making monthly payments for homebuyers hundreds of dollars more expensive.
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Since the beginning of the year, 30-year fixed-rate mortgages have seen a dramatic increase, with the average rate reaching 6.02% for the week ending September 15 according to Freddie Mac.
Glenn Brunker, president of financing company Ally Home, told ABC News that “the latest Fed rate hike could continue to have an impact on affordability.”
While it was down from July’s median sale price of $403,800, August’s median sale price of an existing property was still 7.7 percent more than August 2017’s median sale price of $367,000. Homes are lying on the market for longer periods of time and there is a greater supply of them because of the decline in demand.
As a result, “that bidding war that may have cost you more than a rate hike a few months ago is less likely to happen now,” as Brunker put it. But while housing prices are falling relatively, they are not doing so at the same rate as interest rates are rising.
After the initial fixed-rate term ends on an adjustable-rate mortgage (ARM), the maximum rate increase allowed by law is capped at the loan’s lifetime. So that customers are protected from sudden price hikes at the start of the adjustable period.
Brunker stated that one should obtain pre-approved for a mortgage before beginning the home-buying process.
When buyers are ready to make an offer in a competitive real estate market, having a pre-approval letter in hand is crucial, according to real estate agent and author John Brunker. “It demonstrates to sellers that the purchaser is financially capable of making the purchase and that the lending institution is dedicated to providing finance for the acquisition of the property.”
Experts are stressing the importance of building additional homes to address the housing shortage, but the most recent data is discouraging.
The National Association of Homebuilders reports that builder confidence declined in September for the ninth consecutive month. The Commerce Department reports an August 10% drop in residential permits in the US, which can be an indicator of future home development.