Record-High Home Prices, Rising Mortgage Rates, and a Glimmer of Hope for Homebuyers

Homebuyers are facing the perfect storm in the form of rising mortgage rates combined with yet another month of record-shattering home prices.

In April, median home prices soared to an all-time high of $425,000, according to a recent Realtor.com® report. That’s a whopping 14.2% rise compared with last year.

Meanwhile, skyrocketing mortgage rates averaged 5.1% by the end of April for 30-year fixed-rate loans. And there is still a severe shortage of homes on the market.

So how does this double whammy break down for the average homebuyer? Based on the new national median list price and mortgage rates, a monthly mortgage payment for the same home costs almost 50% more this April than it did just a year ago.

That means buyers who closed last April are shelling out $1,260 for their monthly mortgage payments, while today’s homebuyers would pay $1,820 ($560 more) per month for the same mortgage, on the same house.

“That’s a huge swing for home shoppers to navigate when they’re also likely navigating rising costs for things like gas, groceries, and utilities,” says Danielle Hale, chief economist of Realtor.com. “Today’s home shoppers will need to be extra focused on their budgets to avoid getting carried away in today’s market.”

Housing inventory then vs. now: a whole different world

It’s hard to believe that before the COVID-19 pandemic, homebuyers were complaining about a shortage of homes on the market. Yet it’s so much worse now.

Want proof? In April 2020, there were 60.1% more active listings than there are now for this same period. To put that percentage in perspective, for every five homes available for sale in 2020, today, there are only two.

But there is a silver lining in the storm cloud of record-high home prices and rising rates: Sellers are still listing fewer homes in general than they did pre-pandemic, yet the numbers are inching upward, according to an analysis of 4 of the 5 weeks ending in April.

While the number of homes for sale fell in 42 out of the 50 largest metropolitan areas compared with 2020, eight metros saw a growth spurt of home listings. Metros that saw the most new homes hit the market include Riverside, CA (+23.3%), Austin, TX (+16.5%), and Sacramento, CA (+11.8%). (Metros include the main city and the surrounding suburbs, towns, and smaller urban areas.)

“It’s hard to nail down exactly what’s causing inventory to loosen a little,” says Compass agent Paul Reddam, in Austin. “This is typically the peak of Austin’s real estate cycle when we would normally see more homes on the market, so that is part of it.”

A surprising upside for homebuyers

Though homeowners are putting up more “For Sale” signs, the one-two punch of higher home prices and mortgage rates makes purchasing a home nearly impossible for many buyers on a tight budget. As a result, many are dropping out or putting their homebuying plans on hold.

That’s good news for home shoppers who have the financial leeway to keep looking, since they might not have to contend with the heated bidding wars of the past few months. And with housing stock also projected to grow in the coming weeks (compared with last year), buyers might face more choices as well as less competition.

“These trends together should bring more balance to the housing market that is expected to help cool the pace of price growth,” says Hale. “If home shoppers can navigate higher housing costs, they should have more options to choose from in the near future and less competition from other aspiring homebuyers.”

Why homes are selling faster than ever

While homebuyers will be able to click through more home listings, there’s no sign of the housing market cooling off completely. As home prices and mortgage rates continue to tick up, the amount of time a home lingers on the market has hit a new low.

In April, homes spent 34 days on the market before home shoppers snatched them up. That’s six fewer days from the same time last year and almost an entire month—28 days—less than April 2020.

“Even in the face of higher home costs, there are some factors keeping home shoppers highly motivated,” explains Hale. “One, rents continue to surge by much more than normal, so many potential first-time buyers are looking to escape not only this year’s increases but future rent hikes, too.” (Nationally, rents surged by nearly 20% year over year, to hit $1,807 a month in March, according to Realtor.com.)

Plus, many homebuyers anticipate that mortgage rates will continue to rise—providing a strong impetus to buy as soon as possible. So all in all, buyers will need to move fast once they spot a place they like.

“We still have a lot of young buyers who are looking to make moves into homeownership,” says Hale.

Source: Realtor.com, Margaret Heidenry