Interest rates keep dropping, but low inventory puts damper on spring
Mortgage applications have slowed even though rates fell for the fourth straight week, with the 30-year fixed-rate mortgage hitting 6.28%.
Key points:
- Tightening credit and low inventory are making this a challenging homebuying season.
- The number of mortgage applications fell 4.1% week, despite lower interest rates.
- With listing prices up, would-be buyers are facing mortgage payments that are “roughly 38.4% higher than a year ago.”
Interest rates continued to fall at the start of the spring homebuying season, but low inventory is keeping the real estate market subdued.
Freddie Mac reported the 30-year fixed-rate mortgage was 6.28% this week, down slightly from last week's 6.32%. It's the fourth straight week for the decline but remains well above last year's rate of 4.72%.
"Mortgage rates continue to trend down entering the traditional spring homebuying season," said Sam Khater, Freddie Mac's chief economist. "Unfortunately, those in the market to buy are facing a number of challenges, not the least of which is the low inventory of homes for sale, especially for aspiring first-time homebuyers."
Homebuyers with less-than-excellent credit may find it tougher to get a mortgage, said Lisa Sturtevant, chief economist for Bright MLS.
"The recent banking crises have made some financial institutions wary, leading to more caution in lending," Sturtevant said.
While interest rates have continued to drop, mortgage applications fell 4.1% in the past week, according to the Mortgage Bankers Association. The slowdown comes at a time when applications are usually rising.
"At the entry-level segment of the market, purchase applications for both FHA and VA loans decreased last week," said Mike Fratantoni, MBA's chief economist. "We do expect strong demand from first-time homebuyers over the next several years given the large number of millennials hitting peak first-time homebuyer age, but affordability remains a real challenge in this environment."
The current rates, few options and prices not falling far enough continue to make this housing market unaffordable for many potential buyers, said Hannah Jones, Realtor.com's economic data analyst.
"Though sale prices softened,listing prices remained 6.3% above last year's level in March which, accompanied by higher mortgage rates, meant that prospective buyers were looking at a home payment roughly 38.4% higher than a year ago," Jones said.
The 15-year fixed-rate mortgage averaged 5.64% this week, which was actually higher than the week before when it was at 5.56%. A year ago the 15-year rate was at 3.91%.