The lower the rate, the more purchasing power buyers have.
The median price of a home sold in May rose 3.6% from a year earlier, according to Redfin. That is the largest gain in seven months.
A report from CoreLogic showed prices up 3.6% in April annually, the first annual increase since March 2018.
“The pickup in sales between March and April, has helped to counter the recent slowing in annual home-price growth,” said Frank Nothaft, chief economist at CoreLogic. “Mortgage rates are 0.6 percentage points below what they were one year ago and incomes are up, which has improved affordability for buyers. However, price growth has remained the highest for lower-priced homes, constraining housing choices for first-time buyers.”
And that is the double-edged sword for most homebuyers today. The average rate on the 30-year fixed has fallen from just over 5% last November to about 3.86% today, according to Mortgage News Daily, providing a sizable savings on a monthly payment. But while buyers may get a break there, the supply of lower-priced homes for sale is still incredibly low.
The reasons for the supply constraint are manifold. Homebuilders are still not putting up as many entry-level homes as are needed because the costs of land, labor and materials are just too high. There were 404,000 job openings in the construction sector in April, the highest since the Great Recession, according to the National Association of Home Builders.
In addition, the existing supply of entry-level homes was eaten into significantly by investors during the housing crisis. Millions of homes that went to foreclosure are now part of a new asset class of institutional investor-owned rental portfolios.
Lower interest rates therefore mean even more competition for entry-level buyers. On the higher end, homes are more plentiful, but demand is far lower.
“In May, inventory posted its smallest increase in eight months, and fewer new listings came on the market than last year,” said Fairweather. “Low rates and rising prices will likely lure sellers onto the market this summer, but the lack of new construction will continue to hold back sales growth.”
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