Higher mortgage rates keep the market subdued even as more sellers list their homes

Mortgage rates continue to rise, serving as a bucket of cold water for lenders and consumers that were warming to lower borrowing costs just a few months ago.

According to HousingWire‘s Mortgage Rates Center, the average 30-year conforming rate was 6.61% on Tuesday. That was up 15 basis points (bps) from one week ago and 30 bps higher than on Sept. 18, when the Federal Reserve lowered benchmark rates by 50 bps.

The 15-year conforming rate has increased even more sharply since the Fed’s decision, rising from 5.7% on Sept. 18 to 6.15% on Tuesday.

Data from Altos Research shows that higher mortgage rates aren’t necessarily keeping sellers from listing their homes. For-sale inventory of single-family homes is up 33% from a year ago. New pending sales are also on the rise, with the 60,000 homes going under contract last week representing a 9% increase from the same week last year and an 11% increase from the same week in 2022.

“We’re just very slowly adjusting to this new normal of higher mortgage rates,” said Mike Simonsen, founder and president of Altos Research. “The current pending sales got a boost from lower mortgage rates last month, but those mortgage gains are gone now. This progress is just good enough to show some year-over-year gains and it may be fleeting.” 

Last week, following the release of construction data for September from the U.S. Census Bureau, HousingWire Lead Analyst Logan Mohtashami wrote that homebuilders are having some of the same headaches as consumers when it comes to the cost of borrowing. While the Fed’s policy rate range of 4.75% to 5% is lower than where it was for the past year, it is still much higher than what many market observers consider a neutral rate needed to spur borrower demand.

“We are at recessionary levels for housing permits for five-unit housing. Anyone who thinks we are on the verge of a housing construction boom is kidding themselves, with the policy still this restrictive,“ Mohtashami wrote.

“… I had anticipated better growth in single-family permits because the recent uptick in mortgage rates shouldn’t have been fully felt here yet. However, we know that mortgage rates above 6.75% have made the builders less enthusiastic about issuing many single-family permits.“

Recently released data from Zillow shows that housing starts were down for a second straight year in 2023, although activity remains above pre-pandemic levels. The real estate listings giant reported that builders have pivoted toward condominiums and townhomes in their efforts to create more starter-home supply at lower price points.

Zillow reported that starts for detached single-family homes dropped by 8.9% in 2023, but starts for attached properties rose by 3.2% and condo starts jumped 8.1%. The same trend was evident in housing completions as the number of detached homes fell by 5.1% while attached homes were up 9.6%.

Some parts of the country appear poised for significant supply growth in the near future. Zillow said that single-family permits grew in most major metro areas from January through August compared to the same period last year. Permits jumped by 25% or more in Indianapolis, Phoenix, San Diego, San Antonio and Milwaukee.

On top of higher mortgage rates, home-price appreciation continues to hamper affordability. Redfin reported Tuesday that prices rose 0.5% from August to September on a seasonally adjusted basis. That was fastest monthly rate of growth since April. On a yearly basis, prices grew by 6%.

Mortgage affordability improved in September when rates dropped as low as 6.08%, but home prices are continuing to tick up because demand outweighs supply.

“There are around 20% fewer homes on the market today than there were five years ago, mainly because so many homeowners locked in a low mortgage rate during the pandemic,” Redfin senior economist Sheharyar Bokhari said in the report. “With mortgage rates back above 6.5% this month — and unlikely to drop below 6% this year — home prices will likely continue their consistent climb until more inventory comes onto the market in the spring.”