High borrowing costs are holding back the housing market

Rising borrowing costs threaten a potential recovery for homebuyers.

The housing market appears poised for improvement after mortgage rates fell to a two-year low in September, but measures such as raising mortgage rates to 7 percent could dampen market momentum, Bloomberg reports.

Market volatility and high-stakes elections are causing some would-be sellers to delay putting a property on the market until conditions improve and buyers return.

Weekly mortgage applications fell through much of October as borrowing costs rose, but rebounded last week, according to the Mortgage Bankers Association.

The Federal Reserve, which cut interest rates in September for the first time in four years, plans to meet after next week’s presidential election. The yield on the 10-year Treasury note has risen since the Fed’s last meeting as stable economic conditions have made deeper cuts unlikely in the future.

Rising borrowing costs pose challenges to potential home buyers on several fronts, limiting affordability and discouraging potential sellers from listing properties for sale. Housing supply has also been squeezed by homeowners stuck in low mortgage rates who are reluctant to sell.

“We think we’ll need mortgage rates below 5.5 percent to unfreeze the housing market, which probably won’t happen anytime soon unless we go into a recession,” said Scott Buchta, head of fixed income strategy at Brean Capital. . socket.

Even a small reduction in borrowing costs can help stimulate the housing market. When rates dropped to 6 percent in September, buyers eventually closed on homes that month. Pending sales in October were up nearly 10 percent from a year earlier, according to Realtor.com.

If rates remain high, it is likely that demand growth will decline.

A bright spot for buyers who have not yet left the market. October home supply, partially filled with homes that failed to attract buyers over the summer, soared to the highest level since December 2019, according to Realtor.com.

This inflated inventory gives buyers an advantage over sellers. However, buyers face high borrowing costs that eat into their budgets, leading some house hunters to consider closing on smaller properties or homes in need of renovation.

— Caroline Handel

Read more

Expected home sales rise to record high in three years

The housing market’s losing streak has reached a turning point.

Existing home sales fall to 10-month low but expected to rise