Mortgage rates edged higher from a week ago, adding frustration for buyers who are already contending with an unfriendly housing market.
The rate on the 30-year fixed rate mortgage increased to 6.43% from 6.39% the week prior, according to Freddie Mac. While rates have moderated since November when they hovered around 7%, they have been largely stuck in the mid-6% range since the beginning of the year.
Rates add yet another layer of difficulty for buyers, who are also facing inventory challenges, elevated home prices, and — soon — mortgage fee repricing. Meanwhile, homeowners are reluctant to sell, worsening the acute shortage for-sale properties.
"As we enter the typically busy spring season, affordability remains the primary concern in the housing market," Realtor.com Economist Jiayi Xu said.
Upcoming changes to mortgage fees
As potential buyers eye market conditions, Fannie Mae and Freddie Mac are set to update their mortgage fees next month to improve home affordability for riskier buyers.
Overall, the Federal Housing Finance Agency is set to increase fees on conventional loans for borrowers with higher credit scores, while potential buyers with lower credit scores will pay less than before when closing a mortgage. The changes come on May 1.
Often lenders convert those fees into a higher interest rate, and that can add up.
For instance, under the revised pricing system, a home buyer with a credit score of 739 and a down payment of 20% faces a surcharge of 1.25%. That's a half-point more than the previous surcharge of 0.75%, according to Realtor.com. The difference adds an additional $2,000 in closing expenses on a $400,000 loan.
“The new policy could exacerbate the challenges faced by well-qualified buyers, many of whom are repeat buyers,” Danielle Hale, chief economist at Realtor.com, said in a statement. “As these home buyers typically have better credit scores, the revised [fees] are likely to compound their worries along with facing higher mortgage rates.”
Inventory shortages crunch buyers
That could also compound the current inventory shortage.
Overall, there are 414,000 single family homes on the market nationwide, according to Altos Research. While that’s 50% more active inventory than last year at this time, it’s still 50% less than in 2019.
So the buyers who remain are having a hard time closing on a deal simply because they can't find a house to buy.
For instance, pending home sales for March dropped by 5.2% from the previous month, much more than expected, the National Association of Realtors reported on Thursday. The culprit behind the slide? A dearth of properties for sale, NAR’s chief economist said.
With few homes for sale and more buyers, prices are going up.
The median price of single-family homes increased to $444,481 this week, up 1% from a week prior, Altos Research noted. The median price for new listings and for homes in contract also increased from a week ago. That jibes with two separate indexes this week that showed national home prices rising month over month in February, surprising economists.
Higher prices are likely to remain elevated unless inventory improves, Doug Duncan, chief economist at Fannie Mae, told Yahoo Finance. However, homeowners locked in to their current low rates are staying put, aggravating the inventory shortfall.
“The challenge for the sellers is if they sell today, they're likely to have to take a higher interest rate if they're going to buy another house,” Duncan said. “If they have to use any mortgage, then they're probably gonna give away some of the equity they take out in the higher payment because mortgage rates are up.”
“So it’s a seller’s market,” he said, “with that caveat.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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