Mortgage-interest rates that cool even a little bit could have an impact on the local real-estate market, a new analysis suggests.
“There is potentially a group of ‘shadow’ buyers waiting in the wings, waiting for mortgage rates to come down,” noted Lisa Sturtevant, chief economist for Bright MLS, in an analysis of current market conditions.
“Lower interest rates this summer could also entice some homeowners to sell, which would bring much-needed inventory to the market,” Sturtevant said.
Current regional home inventory is down nearly 60 percent from what had been available in 2019. And with demand likely to continue to outstrip home availability, “it is likely going to continue to be a sellers’ market throughout the rest of 2023, with prices remaining firm and buyers facing competition,” Sturtevant said.
A 30-year, fixed-rate mortgage came with an average interest rate of 6.69 percent in mid-June, according to data from Freddie Mac reported by the St. Louis Federal Reserve. That’s more than double the rate home-buyers were obtaining from late 2020 to late 2021, when the homes market was boosted by historically rock-bottom rates.
Their subsequent rise has impacted not just buyers but perhaps even more so sellers, who are less likely to list homes while sitting on mortgage deals of a lifetime.
It seems to have less of an effect on prospective buyers in the local area, especially those who recognize that even in the 6.5-percent range, mortgage rates are below historic norms. The average home-mortgage interest rate from 1971-2023 is just under 7.8 percent, according to Freddie Mac, with a peak of just over 18 percent in 1981 when Federal Reserve leaders sent the economy in a deliberate tailspin in an effort to wring inflation out of it.
In her analysis, Sturtevant said there is reason to believe current rates are a little higher than they will be shortly.
“We are not going to see rates back down to pandemic levels, but they should come down some this summer,” she said. “When they do, these opportunistic buyers are not going to wait if they find a home they love.”
While the number of closed sales across the local region in May (5,238) was down 23 percent from a year before, home showings (121,897) were down less than 17 percent, suggesting that buyers are out there but that inventory remains constrained.
(Figures represent market data for the District of Columbia; Arlington, Fairfax and Loudoun counties and the cities of Alexandria, Fairfax and Falls Church in Virginia; and Montgomery, Prince George’s and Frederick counties in Maryland.)
Low inventory continues to aid sellers, with May’s median number of days on the market between listing and ratified contract standing at less than a week – its lowest in a year and just one-fourth the total needed for homes to find buyers at the end of 2022.
The median home-sale price across the region ($600,000) was down about 0.8 percent compared to a year before, marking the third month in a row of year-over-year declines after years of increases. Even so, the median sales price of May 2023 was still a whopping 30 percent more than it was in 2019.
The 5,328 homes that went to closing for May across the area marked the 18th consecutive month of declines from a year before. But in positive news, sales rose from April to May in a broad-based spring rally.
Figures represent most, but not all, homes on the market. All figures are preliminary and are subject to revision.
