Housing activity growth slows as mortgage rates rise

The average interest rate for a 30-year mortgage in the United States jumped to 4.67% for the week ending March 31, 2022, the highest reading since December 2018, according to Freddie Mac. Mortgage rates have risen steadily for a month, driven higher by the Federal Reserve’s effort to combat inflation, and placing pressure on prospective homebuyers facing an already pricey market.

Consumer sentiment in the housing market fell in response to increasing mortgage rates. In March, Fannie Mae’s Home Purchase Sentiment Index (HPSI) reported a survey-high 69% of respondents indicated they expect mortgage rates to continue their upward trajectory. It also reported a new survey-low 73% of respondents reported that it’s a bad time to buy a home. If homebuyer demand continues to weaken, it could bring some balance to the market in the form of cooling home prices. However, low inventory remains a persistent challenge, and it may take some time to get back to a truly balanced market.

Single-family housing authorizations increased 2.70% year over year in March, however, the pace of growth slowed from February. While one month of slowed growth is not necessarily indicative of a trend, it could suggest a turning point for new construction as the Federal Reserve’s tightening monetary policy is shifting to decrease demand.

With home price momentum expected to slow, existing homeowners may choose to place their properties for sale sooner. The HPSI also reported that the percentage of respondents who say it’s a good time to sell a home increased to 74% from 72%. A majority of homeowners repair or update their home in preparation for a sale, like replacing the roof or HVAC system, according to a recent report by Realtor.com. In March, existing housing maintenance volume and spend increased 1.24% and 14.35% year over year, respectively. The uptick is likely attributed, in part, to homeowners preparing their homes for sale ahead of peak homebuying season.

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