The housing market may be dampened during the key spring selling season because of rising mortgage rates, less incentive for homeownership and weariness among first-buyers being priced out of the market.
About 40% of the year’s sales take place from March through June, according to the National Association of Realtors, as buyers look to sign a contract on a home before summer vacations and the new school year.
Lackluster sales volumes may put downward pressure on the price growth seen in the past few years, The Wall Street Journal reported. Buyers that can handle rising interest rates may find some opportunities to get a deal, while sellers in more expensive markets may be reluctant to sell.
“It’s still going to be a tight market, but we’re moving from an extremely tight market to one that has some wiggle room around the edges for buyers,” Daren Blomquist, a senior vice president at the housing-research firm Attom Data Solutions, told the newspaper.
The NAR forecasts flat sales compared with a year earlier. Roughly 2.06 million homes were sold between March and June 2017, up from about 2 million in the same period a year earlier, according to the association.
Sales of higher-price homes are slowing through the U.S., partly because the tax overhaul capped the mortgage interest deduction and state and local tax deductions were limited to $10,000. The loss of those incentives is hitting housing markets in high-tax coastal states like California and New York.
Buyers at the low end are being priced out of the market by rising interest rates. The rate for a 30-year mortgage has risen about half a percentage point this year to 4.43 percent from 3.95 percent in early January. That means the median-priced U.S. home that costs about $55 more a month, or $660 a year.
Pending home sales, which measure signed contracts, not closings, fell 4.7 percent in January from December, the lowest point in nearly four years, the NAR said.
The weakness was nationwide, and December’s reading was also revised lower. Pending sales, which are an indicator of future closings, were 3.8 percent lower than January 2017.
Pending home sales in the Northeast fell 9 percent for the month and were down 12.1 percent from a year ago. In the Midwest, sales slid 6.6 percent monthly and 4.1 percent annually. Pending home sales in the South declined 3.9 percent for the month and were 1.1 percent lower than last January. Sales in the West were down 1.2 percent monthly and 2.5 percent annually.
“The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” Lawrence Yun, chief economist for the NAR, said. “The lower end of the market continues to feel the brunt of these supply and affordability impediments.”