Iran ceasefire and lower rates stir hopes of a jump in consumer confidence – but familiar challenges are still present
A weeks-long jump in mortgage rates poured cold water over a hoped-for housing market recovery in March and early April as the Iran war and economic unease pushed 10-year Treasury yields sharply higher, adding fresh affordability hurdles for hopeful buyers and borrowers.
But a fragile ceasefire struck between the US and Iran last week eased some of those bond market jitters and sent yields lower, finally bringing down the average 30-year fixed rate.
The Mortgage Bankers Association (MBA) said on Wednesday that its data showed the average contract rate on a 30-year fixed mortgage with conforming balances slipped to 6.42% last week, its lowest reading for a month and down from 6.51% the week prior.
Financial markets have also reacted positively to the emergence of a brittle – but so far unbroken – truce, and chances of a prolonged cessation of hostilities have stirred hopes that homebuyers could return to the market with some more confidence in the weeks ahead.
Total mortgage applications posted a modest increase last week, the MBA said, with refinances up both week-over-week and annually but purchase activity failing to pick up much momentum.
Don’t expect rates to plunge even if the war winds down soon
Mortgage market watchers are in no doubt that the outcome and longevity of the Iran war will have a huge bearing on how homebuying shapes up this spring.
Even if the war winds down quickly, interest rates aren’t expected to plunge anytime soon. Oil prices, and by extension inflation expectations, would likely remain elevated for some time and keep upward pressure on bond yields.
Still, the fact that rates have stopped their steady march towards the dreaded 7% mark could provide some impetus to the housing market, especially because the days of rock-bottom interest rates during the COVID-19 pandemic are already a distant memory.
While buyers flocked to the sidelines as rates soared from those lows in 2022, most borrowers are now comfortable with rates in the low sixes – and mortgage professionals are hammering home the message that rate isn’t the only thing they need to consider.
“Realistically, we’re not going to see the historically low interest rates from a few years ago anytime soon, if ever,” Kelly McBride of Nexa Lending told Mortgage Professional America. “While rates absolutely play a role in affordability, I always bring the conversation back to the monthly housing payment, because that’s what truly impacts a buyer’s day-to-day budget.”
Buyers finding opportunity despite economic concerns
Home sales activity remained muted in March, dipping by 3.6% compared with the same time last year, according to the National Association of Realtors (NAR).
The market was subdued, NAR’s chief economist Lawrence Yun said, because lower consumer confidence and sluggish job growth are keeping buyers out of the market.
But while affordability challenges are persisting for many hopeful buyers, there’s a bright spot for those who are determined to push ahead with a purchase or need to make their move now: the pendulum has swung back in favor of buyers, giving them more negotiating power and – in certain markets where inventory is increasing – more choice.
In McBride’s local market of Southwest Florida, now is a “great time to buy,” she said. “Inventory is up and sellers are adjusting their pricing, which is creating real opportunities for buyers,” she explained.
And even purchasing at today’s higher rates shouldn’t deter buyers, according to McBride, because of the prospect of lower borrowing costs down the line. “What I want people to understand is that there’s always the option to refinance later if rates decrease or as they build equity in their home,” she said.
“The reality is that you can’t lock in today’s home prices and wait for a better rate. Buyers who are sitting on the sidelines waiting for rates to drop may miss out on the pricing opportunities that exist right now.”
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